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Analyst Blog

CNO Financial Group Inc. (CNO - Analyst Report) reported first-quarter 2014 operating earnings of 27 cents per share, in line with the Zacks Consensus Estimate. However, the figure improved from the year-ago quarter’s earnings of 19 cents.

The improvement was buoyed by share repurchases and growth in premiums during the quarter.

Including loss from the pending divestiture of Conseco Life Insurance Company (CLIC), CNO Financial reported net loss of $1.03 per share in the first quarter of 2014, wider than 5 cents reported in the year-ago quarter.

CNO Financial’s first-quarter revenues stood at $1.08 billion, down from $1.14 billion in the year-earlier quarter. However, the number surpassed the Zacks Consensus Estimate of $1.05 billion. Total new annualized premium increased 4% year over year to $101.9 million. Total benefits and expenses increased 13.2% year over year to $1.3 billion.

Segment Update

Post the divestiture of CLIC, CNO Financial operates through four segments, namely, Bankers Life, Washington National, Colonial Penn and Corporate Operations, effective first-quarter 2014.

Pre-tax operating earnings at the Bankers Life segment surged 36% year over year to $84.2 million in the reported quarter on favorable reserve developments in the Medicare supplement block, favorable mortality rate and higher earnings from the annuity business.

Washington National’s pre-tax operating earnings stood at $31.1 million in the quarter, down 9% from the year-ago quarter. Unfavorable annuity margins and overhead expenses incurred that were previously assigned to the Other CNO Business segment led to the decline. These expenses are expected to continue after the culmination of the CLIC divestiture.

Pre-tax operating loss at Colonial Penn stood at $6.2 million, wider than the year-ago loss of $5.4 million. The deterioration resulted from higher marketing expenses that stemmed from higher television advertising costs.

Corporate Operations, which includes investment advisory subsidiary and corporate expenses, reported a pre-tax loss of $6 million, comparing unfavorably with the year-ago quarter’s earnings of $3 million. The decline was a result of increased expenses and a decline in investment results during the reported quarter.

Financial Update

As of March 31, 2014, the consolidated statutory risk-based capital ratio of CNO Financial’s insurance subsidiaries stood at 427%. This reflects statutory earnings of $92.2 million and dividend of $40 million paid to the holding company in the first quarter of 2014.

In addition, unrestricted cash and investments held by CNO Financial’s holding company decreased to $306 million as of March 31, 2014 from $309 million as of Dec 31, 2013.

As of March 31, 2014, CNO Financial’s debt-to-total capital ratio, excluding accumulated other comprehensive income (loss), surged 70 basis points over 2013-end to 17.6%. This deterioration was caused by a decline in capital from the loss associated with the sale of CLIC and debt repayments in the quarter. Book value per common share, excluding accumulated other comprehensive income (loss), decreased to $17.52 as of March 31, 2014 from $18.62 as of Dec 31, 2013, mainly due to the loss incurred from the CLIC sale.

As of March 31, 2014, CNO Financial had total assets worth $34.5 billion, down from $34.8 billion as of Dec 31, 2013 and shareholder equity stood at $4.71 billion, reflecting a drop from $4.96 billion as of Dec 31, 2014.

Securities Repurchase Update

CNO Financial spent $41 million to repurchase 2.2 million shares in the reported quarter. The company had earlier projected to spend $225–$300 million on the repurchase of securities in 2014. Now, the company expects to spend at the higher end of the previously guided range. CNO Financial is left with 219.3 million shares under its current authorization and has the authority to repurchase shares up to an additional amount of $356.4 million worth of shares.

Dividend Update

CNO Financial spent $13.3 million on dividend payment in the reported quarter.

Zacks Rank

CNO Financial carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the insurance space include AXA Group (AXAHY), Ping An Insurance (Group) Company of China, Ltd. (PNGAY) and Prudential plc (PUK - Snapshot Report). All three stocks carry a Zacks Rank #2 (Buy).

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