CNO Financial Earnings 2019-09-30

CNO 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

Comparables ($MM TTM)
Ticker	M Cap	Assets	Liab	Rev	G Profit	Net Inc	EBITDA	EV	G Margin	EV/EBITDA	ROA
AFL	41,339	151,400	123,159	21,951	0	3,115	4,445	38,320	0%	8.6	2%
PFG	15,792	267,918	253,512	15,835	0	1,541	1,793	16,269	0%	9.1	1%
UNM	7,000	65,844	56,391	11,813	0	526	637	10,280	0%	16.1	1%
AIZ	6,842	43,140	37,379	9,568	0	391	625	7,359	0%	11.8	1%
UBSH	2,685	17,159	14,647	0	0	167	357	3,585		10.0	1%
COLB	2,683	13,091	10,957	0	0	189	263	2,424		9.2	1%
CNO	2,670	32,716	28,464	4,262	0	-412	47	3,062	0%	65.4	-1%
FULT	2,666	21,309	19,000	201	0	240	460	2,167	0%	4.7	1%
GTS	515	2,837	1,916	3,172	0	37	72	376	0%	5.2	1%

Document

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



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

For the quarterly period ended September 30, 2019



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

For the transition period from ___ to ___

Commission File Number 001-31792

CNO Financial Group, Inc.



Delaware			75-3108137
State of Incorporation			IRS Employer Identification No.

11825 N. Pennsylvania Street
Carmel,	Indiana	46032	(317)	817-6100
Address of principal executive offices			Telephone

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	CNO	New York Stock Exchange
Rights to purchase Series D Junior Participating Preferred Stock		New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒

Shares of common stock outstanding as of October 22, 2019: 151,139,901

TABLE OF CONTENTS



PART I - FINANCIAL INFORMATION		Page

Item 1.	Financial Statements (unaudited)

	Consolidated Balance Sheet as of September 30, 2019 and December 31, 2018	3
	Consolidated Statement of Operations for the three and nine months ended September 30, 2019 and 2018	5
	Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018	6
	Consolidated Statement of Shareholders' Equity for the three and nine months ended September 30, 2019 and 2018	7
	Consolidated Statement of Cash Flows for the nine months ended September 30, 2019 and 2018	9
	Notes to Consolidated Financial Statements	10

Item 2.	Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations	58
	Cautionary Statement Regarding Forward-Looking Statements	58
	Overview	60
	Critical Accounting Policies	62
	Results of Operations	63
	Premium Collections	82
	Liquidity and Capital Resources	88
	Investments	94
	Investments in Variable Interest Entities	102
	New Accounting Standards	104

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	104

Item 4.	Controls and Procedures	105


PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	106

Item 1A.	Risk Factors	106

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	106

Item 6.	Exhibits	107

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Dollars in millions)

(unaudited)

ASSETS



	September 30, 2019		December 31, 2018

Investments:
Fixed maturities, available for sale, at fair value (amortized cost: September 30, 2019 - $18,801.6; December 31, 2018 - $18,107.8)	$	21,089.2	$	18,447.7
Equity securities at fair value (cost: September 30, 2019 - $39.9; December 31, 2018 - $319.8)	39.3		291.0
Mortgage loans	1,561.7		1,602.1
Policy loans	122.8		119.7
Trading securities	247.3		233.1
Investments held by variable interest entities	1,204.2		1,468.4
Other invested assets	1,070.9		833.4
Total investments	25,335.4		22,995.4
Cash and cash equivalents - unrestricted	760.3		594.2
Cash and cash equivalents held by variable interest entities	61.7		62.4
Accrued investment income	212.7		205.2
Present value of future profits	284.0		343.6
Deferred acquisition costs	1,138.8		1,322.5
Reinsurance receivables	4,802.4		4,925.4
Income tax assets, net	241.5		630.0
Assets held in separate accounts	4.2		4.4
Other assets	438.8		356.7
Total assets	$	33,279.8	$	31,439.8

(continued on next page)

The accompanying notes are an integral part

of the consolidated financial statements.

Table of Contents

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET, continued

(Dollars in millions)

(unaudited)

LIABILITIES AND SHAREHOLDERS' EQUITY



	September 30, 2019		December 31, 2018

Liabilities:
Liabilities for insurance products:
Policyholder account balances	$	11,845.5	$	11,594.1
Future policy benefits	11,576.6		11,082.4
Liability for policy and contract claims	508.9		521.9
Unearned and advanced premiums	242.8		253.9
Liabilities related to separate accounts	4.2		4.4
Other liabilities	762.0		632.4
Investment borrowings	1,644.8		1,645.8
Borrowings related to variable interest entities	1,153.0		1,417.2
Notes payable – direct corporate obligations	988.7		916.8
Total liabilities	28,726.5		28,068.9
Commitments and Contingencies
Shareholders' equity:
Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued and outstanding: September 30, 2019 – 152,183,491; December 31, 2018 – 162,201,692)	1.5		1.6
Additional paid-in capital	2,834.6		2,995.0
Accumulated other comprehensive income	1,442.9		177.7
Retained earnings	274.3		196.6
Total shareholders' equity	4,553.3		3,370.9
Total liabilities and shareholders' equity	$	33,279.8	$	31,439.8

The accompanying notes are an integral part

of the consolidated financial statements.

Table of Contents

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,
	2019			2018			2019			2018
Revenues:
Insurance policy income	$	620.0		$	656.9		$	1,857.6		$	1,976.6
Net investment income:
General account assets	275.9			332.0			833.2			989.3
Policyholder and other special-purpose portfolios	23.6			85.8			156.6			134.3
Realized investment gains (losses):
Net realized gains on the transfer of assets related to reinsurance transaction	—			363.4			—			363.4
Other net realized investment gains (losses), excluding impairment losses	5.7			33.3			29.3			29.1
Impairment losses recognized (a)	(3.4		)	(2.1		)	(5.6		)	(2.1		)
Total realized gains	2.3			394.6			23.7			390.4
Fee revenue and other income	22.2			11.9			75.7			44.7
Total revenues	944.0			1,481.2			2,946.8			3,535.3
Benefits and expenses:
Insurance policy benefits	582.8			646.9			1,816.7			1,851.7
Loss related to reinsurance transaction	—			1,067.6			—			1,067.6
Interest expense	37.5			38.8			117.1			110.1
Amortization	51.6			62.4			156.0			195.3
Loss on extinguishment of debt	—			—			7.3			—
Loss on extinguishment of borrowings related to variable interest entities	—			—			—			3.8
Other operating costs and expenses	218.6			205.3			682.9			608.7
Total benefits and expenses	890.5			2,021.0			2,780.0			3,837.2
Income (loss) before income taxes	53.5			(539.8		)	166.8			(301.9		)
Income tax expense (benefit):
Tax expense (benefit) on period income (loss)	11.5			(114.8		)	35.4			(63.4		)
Valuation allowance for deferred tax assets and other tax items	—			104.8			—			104.8
Net income (loss)	$	42.0		$	(529.8	)	$	131.4		$	(343.3	)
Earnings per common share:
Basic:
Weighted average shares outstanding	154,257,000			164,551,000			158,007,000			165,903,000
Net income (loss)	$	.27		$	(3.22	)	$	.83		$	(2.07	)
Diluted:
Weighted average shares outstanding	155,260,000			164,551,000			159,061,000			165,903,000
Net income (loss)	$	.27		$	(3.22	)	$	.83		$	(2.07	)

______________


(a)	No portion of the other-than-temporary impairments recognized in the periods was included in accumulated other comprehensive income.

The accompanying notes are an integral part

of the consolidated financial statements.

Table of Contents

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Dollars in millions)

(unaudited)



	Three months ended						Nine months ended
	September 30,						September 30,
	2019			2018			2019			2018
Net income (loss)	$	42.0		$	(529.8	)	$	131.4		$	(343.3	)
Other comprehensive income (loss), before tax:
Unrealized gains (losses) for the period	619.5			(149.1		)	1,991.0			(1,264.1		)
Adjustment to present value of future profits and deferred acquisition costs	(58.3		)	18.7			(175.0		)	107.4
Amount related to premium deficiencies assuming the net unrealized gains (losses) had been realized	(124.0		)	106.5			(200.5		)	509.5
Reclassification adjustments:
For net realized investment (gains) losses included in net income (loss)	2.6			(354.7		)	(.3		)	(366.4		)
For amortization of the present value of future profits and deferred acquisition costs related to net realized investment gains (losses) included in net income (loss)	.2			(.5		)	.6			(.1		)
Other comprehensive income (loss) before tax	440.0			(379.1		)	1,615.8			(1,013.7		)
Income tax (expense) benefit related to items of accumulated other comprehensive income (loss)	(95.3		)	82.4			(350.6		)	221.4
Other comprehensive income (loss), net of tax	344.7			(296.7		)	1,265.2			(792.3		)
Comprehensive income (loss)	$	386.7		$	(826.5	)	$	1,396.6		$	(1,135.6	)

The accompanying notes are an integral part

of the consolidated financial statements.

Table of Contents

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

(Dollars in millions, shares in thousands)

(unaudited)



	Common stock					Additional paid-in			Accumulated other comprehensive			Retained
	Shares		Amount			capital			income			earnings			Total
Balance, June 30, 2018	164,433		$	1.6		$	3,021.9		$	700.2		$	731.2		$	4,454.9
Net loss	—		—			—			—			(529.8		)	(529.8		)
Change in unrealized appreciation (depreciation) of investments (net of applicable income tax benefit of $82.3)	—		—			—			(296.1		)	—			(296.1		)
Change in noncredit component of impairment losses on fixed maturities, available for sale (net of applicable income tax benefit of $.1)	—		—			—			(.6		)	—			(.6		)
Cost of common stock repurchased	—		—			—			—			—			—
Dividends on common stock	—		—			—			—			(16.6		)	(16.6		)
Employee benefit plans, net of shares used to pay tax withholdings	201		—			8.1			—			—			8.1
Balance, September 30, 2018	164,634		$	1.6		$	3,030.0		$	403.5		$	184.8		$	3,619.9

Balance, June 30, 2019	156,768		$	1.6		$	2,903.2		$	1,098.2		$	249.2		$	4,252.2
Net income	—		—			—			—			42.0			42.0
Change in unrealized appreciation (depreciation) of investments (net of applicable income tax expense of $93.8)	—		—			—			339.2			—			339.2
Change in noncredit component of impairment losses on fixed maturities, available for sale (net of applicable income tax expense of $1.5)	—		—			—			5.5			—			5.5
Cost of common stock repurchased	(4,798	)	(.1		)	(75.2		)	—			—			(75.3		)
Dividends on common stock	—		—			—			—			(16.9		)	(16.9		)
Employee benefit plans, net of shares used to pay tax withholdings	213		—			6.6			—			—			6.6
Balance, September 30, 2019	152,183		$	1.5		$	2,834.6		$	1,442.9		$	274.3		$	4,553.3

The accompanying notes are an integral part

of the consolidated financial statements.

Table of Contents

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY, continued

(Dollars in millions, shares in thousands)

(unaudited)



	Common stock					Additional paid-in			Accumulated other comprehensive			Retained
	Shares		Amount			capital			income			earnings			Total
Balance, December 31, 2017	166,858		$	1.7		$	3,073.3		$	1,212.1		$	560.4		$	4,847.5
Cumulative effect of accounting change	—		—			—			(16.3		)	16.3			—
Balance, January 1, 2018	166,858		1.7			3,073.3			1,195.8			576.7			4,847.5
Net loss	—		—			—			—			(343.3		)	(343.3		)
Change in unrealized appreciation (depreciation) of investments (net of applicable income tax benefit of $221.2)	—		—			—			(791.5		)	—			(791.5		)
Change in noncredit component of impairment losses on fixed maturities, available for sale (net of applicable income tax benefit of $.2)	—		—			—			(.8		)	—			(.8		)
Cost of common stock repurchased	(2,998	)	(.1		)	(60.4		)	—			—			(60.5		)
Dividends on common stock	—		—			—			—			(48.6		)	(48.6		)
Employee benefit plans, net of shares used to pay tax withholdings	774		—			17.1			—			—			17.1
Balance, September 30, 2018	164,634		$	1.6		$	3,030.0		$	403.5		$	184.8		$	3,619.9

Balance, December 31, 2018	162,202		$	1.6		$	2,995.0		$	177.7		$	196.6		$	3,370.9
Cumulative effect of accounting change	—		—			—			—			(3.1		)	(3.1		)
Balance, January 1, 2019	162,202		1.6			2,995.0			177.7			193.5			3,367.8
Net income	—		—			—			—			131.4			131.4
Change in unrealized appreciation (depreciation) of investments (net of applicable income tax expense of $349.1)	—		—			—			1,259.6			—			1,259.6
Change in noncredit component of impairment losses on fixed maturities, available for sale (net of applicable income tax expense of $1.5)	—		—			—			5.6			—			5.6
Cost of common stock repurchased	(11,033	)	(.1		)	(177.2		)	—			—			(177.3		)
Dividends on common stock	—		—			—			—			(50.6		)	(50.6		)
Employee benefit plans, net of shares used to pay tax withholdings	1,014		—			16.8			—			—			16.8
Balance, September 30, 2019	152,183		$	1.5		$	2,834.6		$	1,442.9		$	274.3		$	4,553.3

The accompanying notes are an integral part

of the consolidated financial statements.

Table of Contents

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollars in millions)

(unaudited)



	Nine months ended
	September 30,
	2019			2018
Cash flows from operating activities:
Insurance policy income	$	1,726.2		$	1,848.1
Net investment income	839.7			1,005.7
Fee revenue and other income	75.7			44.7
Insurance policy benefits	(1,224.0		)	(1,515.6		)
Payment to reinsurer pursuant to long-term care business reinsured	—			(365.0		)
Interest expense	(103.9		)	(92.8		)
Deferrable policy acquisition costs	(217.5		)	(187.2		)
Other operating costs	(588.7		)	(591.9		)
Income taxes	3.4			(31.0		)
Net cash from operating activities	510.9			115.0
Cash flows from investing activities:
Sales of investments	2,659.3			2,747.2
Maturities and redemptions of investments	1,625.6			1,966.7
Purchases of investments	(4,387.7		)	(5,037.6		)
Net sales (purchases) of trading securities	(6.6		)	25.4
Other	(92.1		)	(16.3		)
Net cash used by investing activities	(201.5		)	(314.6		)
Cash flows from financing activities:
Issuance of notes payable, net	494.2			—
Payments on notes payable	(425.0		)	—
Expenses related to extinguishment of debt	(6.1		)	—
Issuance of common stock	6.0			3.5
Payments to repurchase common stock	(181.2		)	(67.5		)
Common stock dividends paid	(50.6

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$0.00	161	$2,670

10-Q	2019-11-06	Quarter: 2019-09-30
10-Q	2019-08-06	Quarter: 2019-06-30
10-Q	2019-05-03	Quarter: 2019-03-31
10-K	2019-02-26	Annual: 2018-12-31
10-Q	2018-11-05	Quarter: 2018-09-30
10-Q	2018-08-03	Quarter: 2018-06-30
10-Q	2018-05-02	Quarter: 2018-03-31
10-K	2018-02-23	Annual: 2017-12-31
10-Q	2017-11-01	Quarter: 2017-09-30
10-Q	2017-08-04	Quarter: 2017-06-30
10-Q	2017-05-03	Quarter: 2017-03-31
10-K	2017-02-21	Annual: 2016-12-31
10-Q	2016-11-07	Quarter: 2016-09-30
10-Q	2016-08-02	Quarter: 2016-06-30
10-Q	2016-05-04	Quarter: 2016-03-31
10-K	2016-02-19	Annual: 2015-12-31
10-Q	2015-11-03	Quarter: 2015-09-30
10-Q	2015-08-03	Quarter: 2015-06-30
10-Q	2015-05-05	Quarter: 2015-03-31
10-K	2015-02-20	Annual: 2014-12-31
10-Q	2014-11-06	Quarter: 2014-09-30
10-Q	2014-08-05	Quarter: 2014-06-30
10-Q	2014-05-06	Quarter: 2014-03-31
10-K	2014-02-24	Annual: 2013-12-31
10-Q	2013-11-01	Quarter: 2013-09-30
10-Q	2013-08-02	Quarter: 2013-06-30
10-K	2013-02-19	Annual: 2012-12-31
10-Q	2012-11-01	Quarter: 2012-09-30
10-Q	2012-07-27	Quarter: 2012-06-30
10-Q	2012-05-04	Quarter: 2012-03-31
10-K	2012-02-27	Annual: 2011-12-31
10-Q	2011-10-31	Quarter: 2011-09-30
10-Q	2011-08-01	Quarter: 2011-06-30
10-Q	2011-05-05	Quarter: 2011-03-31
10-K	2011-02-24	Annual: 2010-12-31
10-Q	2010-11-08	Quarter: 2010-09-30
10-Q	2010-08-06	Quarter: 2010-06-30
10-Q	2010-05-10	Quarter: 2010-03-31
10-K	2010-03-04	Annual: 2009-12-31

8-K	2020-02-19	Officers, Other Events, Exhibits
8-K	2020-02-11	Earnings, Exhibits
8-K	2020-01-14	Regulation FD, Exhibits
8-K	2019-11-19	Regulation FD, Exhibits
8-K	2019-11-14	Officers, Regulation FD, Exhibits
8-K	2019-11-05	Earnings, Exhibits
8-K	2019-09-05	Regulation FD, Exhibits
8-K	2019-08-06	Officers, Other Events, Exhibits
8-K	2019-07-30	Earnings, Exhibits
8-K	2019-06-12	Enter Agreement, Off-BS Arrangement, Exhibits
8-K	2019-05-29	Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K	2019-05-28	Other Events, Exhibits
8-K	2019-05-28	Other Events, Exhibits
8-K	2019-05-10	Shareholder Vote, Regulation FD, Exhibits
8-K	2019-04-30	Earnings, Exhibits
8-K	2019-04-29	Earnings, Other Events, Exhibits
8-K	2019-03-18	Officers, Other Events, Exhibits
8-K	2019-03-04	Regulation FD, Exhibits
8-K	2019-02-13	Earnings, Exhibits
8-K	2019-02-12	Earnings, Exhibits
8-K	2018-11-01	Earnings, Exhibits
8-K	2018-10-31	Earnings, Exhibits
8-K	2018-10-25	Other Events, Exhibits
8-K	2018-09-27	Enter Agreement, M&A, Exhibits
8-K	2018-08-02	Earnings, Exhibits
8-K	2018-08-01	Earnings, Exhibits
8-K	2018-08-01	Enter Agreement, Exhibits
8-K	2018-05-09	Shareholder Vote, Regulation FD, Exhibits
8-K	2018-04-26	Earnings, Exhibits
8-K	2018-04-25	Earnings, Exhibits
8-K	2018-02-14	Earnings, Exhibits
8-K	2018-02-13	Earnings, Exhibits

EX-31.1	cno09302019ex311.htm
EX-31.2	cno09302019ex312.htm
EX-32.1	cno09302019ex321.htm
EX-32.2	cno09302019ex322.htm