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Analyst Blog

CNO Financial Group Inc. (CNO - Analyst Report) reported second-quarter 2013 operating earnings of 30 cents per share, surpassing the Zacks Consensus Estimate of 26 cents. The result also surpassed 20 cents earned in the year-ago quarter. Adjusted operating income in the quarter was $67.7 million, up 24.9% from $54.2 million in the second quarter of 2012.

CNO Financial reported net income of $77.1 million or 34 cents per share. The result includes net realized investment gains of $1.8 million, changes in fair value of embedded derivative liabilities of $12.1 million, loss on extinguishment of debt of $6.8 million, equity in earnings of certain non-strategic investments and earnings attributable to non-controlling interests of ($2.7 million), and valuation allowance for deferred tax assets of $5 million in the reported quarter. The reported net income compared favorably with net income of $65.7 million or 24 cents per share in the year-ago quarter.

CNO Financial’s revenues inched up 1.6% to $1.08 billion from $1.07 billion in the prior-year quarter. Total revenue also surpassed the Zacks Consensus Estimate of $1.06 billion. Total new annualized premium increased 5% year over year to $102.3 million. Total benefits and expenses increased 0.7% year over year to $966.8 million.

Segment Update

Pre-tax operating earnings in the Bankers Life segment increased 3.9% year over year to $79.1 million in the reported quarter due to higher premiums collected and stable benefit ratios and interest rate spreads.

Washington National’s pre-tax operating earnings were $31.8 million in the quarter, declining 6.2% from the year-ago quarter.

Pre-tax operating earnings of Colonial Penn inched up to $1.2 million from $0.6 million in the comparable quarter last year due to higher earnings from in-force business. Management expects a pre-tax loss of $5–$10 million in this segment in 2013.

Other CNO Business reported pre-tax operating income of $2.6 million in the quarter, against $1.9 million in the year-ago quarter. The guidance for this segment’s 2013 pre-tax income stands at $5–$20 million.

Corporate Operations, which includes investment advisory subsidiary and corporate expenses, bounced back to a pre-tax income of $2.4 million from pre-tax loss of $9.1 million in the year-ago quarter, based on improved investment income and reduced expenses.

Financial Update

During the second quarter of 2013, the consolidated statutory risk-based capital ratio of CNO Financial’s insurance subsidiaries increased 100 basis points to 376%, driven by statutory earnings of $102.1 million and dividend of $57.5 million paid to the holding company during the quarter.

In addition, unrestricted cash and investments held by CNO Financial’s holding company decreased to $230 million as of Jun 30, 2013 from $294 million as of Dec 31, 2013 due to tender offers and debt repayment.

As of Jun 30, 2013, CNO Financial’s debt-to-total capital ratio, excluding accumulated other comprehensive income (loss), declined 180 basis points over 2012-end to 18.9% due to the company’s recapitalization plan. Book value per common share, excluding accumulated other comprehensive income (loss), increased to $17.01 as of Jun 30, 2013 from $16.21 as of Dec 31, 2012.

As of Jun 30, 2013, CNO Financial had total assets worth $33.8 billion and shareholder equity stood at $4.6 billion.

Securities Repurchase Update

CNO Financial spent $50 million to repurchase 4.4 million shares in the reported quarter. Moreover, the company spent $9.4 million to repurchase convertible debentures worth $4.5 million during the quarter. The company expects to spend $250–$300 million on the repurchase of securities in 2013.

Dividend Update

CNO Financial spent $6.6 million on dividend payment in the reported quarter.

Ratings Update

On Jul 24, 2013, Standard and Poor’s increased CNO Financial’s issuer credit ratings and debt ratings to “BB” from “BB-” with a stable outlook.

Zacks Rank

CNO Financial carries a Zacks Rank #3 (Hold). Other multi-line insurers worth considering are AXA Group (AXAHY), Horace Mann Educators Corp. (HMN - Snapshot Report) and Enstar Group Limited (ESGR - Snapshot Report). All these companies carry a Zacks Rank #1 (Strong Buy).

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