Solid third quarter results with earnings per share up 18%, continued strong sales momentum
CARMEL, Ind., Oct. 31, 2022 /PRNewswire/ -- CNO Financial Group, Inc. (NYSE: CNO) today announced that for the quarter ended September 30, 2022, net income was $105.0 million, or $0.91 per diluted share, compared to $99.8 million, or $0.77 per diluted share, in 3Q21. Net operating income (1) in 3Q22 was $56.9 million, or $0.49 per diluted share, compared to $92.8 million, or $0.72 per diluted share, in 3Q21.
"CNO again delivered solid earnings in a challenging macroeconomic environment," said Gary C. Bhojwani, chief executive officer. "Continued strong production in our annuities, direct-to-consumer and worksite businesses resulted in gains in total new annualized premiums for the quarter. Increases in our capital ratios and the consistent strength of our balance sheet underscore our disciplined capital management. While economic uncertainty is likely to persist, the resiliency of our diverse business model positions us well to continue to capitalize on the growing needs of our market and to deliver sustainable long-term value to our shareholders."
Third Quarter 2022 Highlights
Earnings per diluted share of $0.91 in 3Q22, up from $0.77 in 3Q21
Operating (1) EPS of $0.49 in 3Q22, compared to $0.72 in 3Q21
Pre-tax operating earnings of $74.3 million in 3Q22, compared to $119.3 million in 3Q21, reflecting: (i) lower variable investment income returns; (ii) unfavorable impacts to the fixed index annuity margin from market volatility; and (iii) higher expenses related to continued investment in growth initiatives
Total new annualized premiums (NAP) (4) up 3% from 3Q21
Direct-to-consumer life insurance NAP (4) up 4% from 3Q21
Worksite Division NAP (4) up 33% from 3Q21
Annuity collected premiums up 11% from 3Q21
Returned $26.1 million to shareholders in the form of share repurchases ($10.0 million) and dividends ($16.1 million); reduced weighted average share count by 10% since 3Q21
Estimated consolidated risk-based capital ratio of 375% at September 30, 2022
Return on equity (ROE) of 13.0%; operating ROE, as adjusted (6), of 10.2%
Book value per share was $11.35; book value per diluted share, excluding accumulated other comprehensive loss (2), was $29.87
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INSURANCE OPERATIONS
Annuity products accounted for 19 percent of the Company's margin for the quarter.
Annuity premiums collected increased 11 percent and annuity account values increased 7 percent in 3Q22 compared to 3Q21.
Health products accounted for 60 percent of the Company's insurance margin for the quarter and 65 percent of insurance policy income.
Life products accounted for 21 percent of the Company's insurance margin for the quarter and 34 percent of insurance policy income.
Sales of health products were up 8 percent and sales of life products were down slightly in 3Q22 compared to 3Q21.
Total allocated expenses were $150.5 million, up 7 percent from the year-ago quarter.
Total insurance margins were favorably impacted by approximately $22 million and $23 million in the quarters ended September 30, 2022 and 2021, respectively, due to the estimated impacts of COVID-19.
Total annuity margins were favorably impacted by approximately $1 million and $1 million in the quarters ended September 30, 2022 and 2021, respectively, due to the estimated impacts of COVID-19.
Total health margins were favorably impacted by approximately $26 million and $25 million in the quarters ended September 30, 2022 and 2021, respectively, due to the estimated impacts of COVID-19.
Total life margins were unfavorably impacted by approximately $5 million and $3 million in the quarters ended September 30, 2022 and 2021, respectively, due to the estimated impacts of COVID-19.
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The fair value of CNO's available for sale fixed maturity portfolio was $20.3 billion compared with an amortized cost of $23.4 billion. Net unrealized losses were comprised of gross unrealized gains of $94.0 million and gross unrealized losses of $3,183.4 million. The allowance for credit losses was $52.0 million at September 30, 2022.
At amortized cost and fair value, 94 percent and 93 percent of fixed maturities, available for sale, were rated "investment grade", respectively.
Non-Operating Items
Net investment losses in 3Q22 were $.1 million (net of related amortization) including the favorable change in the allowance for credit losses of $7.5 million which was recorded in earnings. Net investment gains in 3Q21 were $2.2 million (net of related amortization) including the unfavorable change in the allowance for credit losses of $1.4 million which was recorded in earnings.
During 3Q22 and 3Q21, we recognized a decrease in earnings of $17.0 million and $4.6 million, respectively, due to the net change in market value of investments recognized in earnings.
During 3Q22 and 3Q21, we recognized an increase in earnings of $66.0 million and $10.9 million, respectively, resulting from changes in the estimated fair value of embedded derivative liabilities related to our fixed index annuities, net of related amortization. Such amounts include the impacts of changes in market interest rates used to determine the derivative's estimated fair value.
In 3Q22, other non-operating items included an increase in earnings of $12.0 million 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.
Statutory (based on non-GAAP measures) and GAAP Capital Information
Our consolidated statutory risk-based capital ratio was estimated at 375% at September 30, 2022, reflecting estimated 3Q22 statutory operating income of $65 million (and $189 million in the first nine months of 2022) and the payment of insurance company dividends to the holding company of $11.0 million during 3Q22 (and $95.0 million, net of capital contributions, in the first nine months of 2022).
During the third quarter of 2022, we repurchased $10.0 million of common stock under our securities repurchase program. We repurchased .6 million common shares at an average cost of $17.84 per share. As of September 30, 2022, we had 114.4 million shares outstanding and had authority to repurchase up to an additional $196.9 million of our common stock. During 3Q22, dividends paid on common stock totaled $16.1 million.
Unrestricted cash and investments held by our holding company were $162 million at September 30, 2022, compared to $249 million at December 31, 2021.
Book value per common share was $11.35 at September 30, 2022 compared to $43.69 at December 31, 2021. Book value per diluted share, excluding accumulated other comprehensive income (loss) (2), was $29.87 at September 30, 2022, compared to $26.86 at December 31, 2021.
The debt-to-capital ratio was 46.7 percent and 17.8 percent at September 30, 2022 and December 31, 2021, respectively. Our debt-to-total capital ratio, excluding accumulated other comprehensive income (loss) (3) was 24.7 percent at September 30, 2022, compared to 25.6 percent at December 31, 2021.
Return on equity for the trailing four quarters ended September 30, 2022 and 2021, was 13.0% and 8.4%, respectively. Operating return, excluding significant items, on equity, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (6) for the trailing four quarters ended September 30, 2022 and 2021, was 9.0% and 11.6%, 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 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, 2021 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, 2022 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 . 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 $33 billion in total assets. Our 3,400 associates, 4,400 exclusive agents and 4,700 independent partner agents guide individuals, families and businesses through a lifetime of financial decisions. For more information, visit CNOinc.com.
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SOURCE CNO Financial Group, Inc.