CNO Financial Group Inc. ( CNO - Analyst Report ) reported second-quarter 2012 operating income of 20 cents per share, handily beating the Zacks Consensus Estimate of 17 cents as well as the year-ago earnings of 15 cents. Operating income in the quarter was $54.2 million, up 22% from $44.5 million in the second quarter of 2011.

Including net realized investment gains of $18.7 million, $6.9 million in after-tax non-operating charges related to the change in estimated fair value of embedded derivatives and $0.3 million loss on extinguishment of debt, CNO Financial reported net income of $65.7 million or 24 cents per share in the quarter under review. Results compared favorably with $46.4 million or 16 cents per share earned in the year-ago quarter.

Net income of the year-ago quarter included net realized investment gains of $2.3 million and loss on extinguishment of debt of $0.4 million.

CNO Financial’s revenues increased 3.2% to $1.07 billion from $1.03 billion in the prior-year quarter. Total revenue also surpassed the Zacks Consensus Estimate of $1.03 billion. Total new annualized premium increased 6% year over year to $97.4 million. Total benefits and expenses stayed almost constant year over year at $960.5 million.

Segment Update

Pre-tax operating earnings in the Bankers Life segment improved 6% year over year to $76.1 million in the reported quarter. Pre-tax earnings for the reported and year-ago quarters include $3.6 million and $3.7 of premium adjustments on assumed reinsurance agreements with Coventry.

Washington National’s pre-tax operating earnings were $33.9 million in the quarter, surging 56% from the year-ago quarter.

Pre-tax operating loss of Colonial Penn accelerated marginally to $0.6 million from $0.5 million in the comparable quarter last year.

Other CNO Business reported pre-tax operating earnings of $1.9 million in the quarter compared with $5.1 million in the year-ago quarter.

Moreover, Corporate Operations, which includes investment advisory subsidiary and corporate expenses, incurred net expense of $9.1 million in the quarter under review compared with $11.3 million in the year-ago quarter.

Financial Update

During the reported quarter, the consolidated statutory risk-based capital ratio of CNO Financial’s insurance subsidiaries increased 9 percentage points sequentially to 369%, driven by statutory earnings of $97 million.

In addition, unrestricted cash and investments held by CNO Financial’s non-insurance subsidiaries decreased to $197.7 million as of June 30, 2012 from $171.9 million as of March 31, 2012, mainly due to $44 million in share repurchases and $22 million of debt repayment.

CNO Financial had $172 million remaining under its existing share repurchase program, as of June 30, 2012. The company expects to repurchase shares worth $150-$170 million for the remainder of 2012.

As of June 30, 2012, debt-to-total capital ratio, excluding accumulated other comprehensive income (loss), edged down 1.7% from 2011 end to 16.6% in the reported quarter. Book value per common share, excluding accumulated other comprehensive income (loss), increased to $16.67 at the end of the reported period from $15.88 at 2011 end.

As of June 30, 2012, CNO Financial had total assets worth $33.4 billion and shareholders’ equity stood at $4.89 billion.

Adoption of New Accounting Standard

CNO Financial adopted a new accounting standard – ASU 2010-26 – from January 1, 2012. The accounting standard, which is related to the accounting for deferred acquisition costs, has been adopted on a retrospective basis.

While it has no impact on cash flows, statutory financial results or profitability of the company, it impacts the timing of recognition of certain profits. Consequently, the new guidance led to a negative impact of $12.1 million and $13.1 million, respectively, on the net income of the reported quarter and the year-ago quarter. Additionally, the shareholders’ equity at the end of 2011 reduced $575 million.

Peer Comparison

Aflac Inc. ( AFL - Analyst Report ) , a competitor of CNO Financial, reported second-quarter 2012 operating earnings per share of $1.61, in line with the Zacks Consensus Estimate, but modestly surpassing the year-ago quarter’s earnings of $1.55. Operating earnings climbed 3.9% year over year to $755 million.

Torchmark Corp. ( TMK - Analyst Report ) reported second-quarter 2012 net operating income of $1.30 per share, up 19% year over year.

Zacks Rank

We retain our Neutral recommendation on CNO Financial. The quantitative Zacks #2 Rank for the company indicates a short-term Buy rating.