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Analyst Blog

CNO Financial Group Inc. (CNO - Analyst Report) reported fourth-quarter 2012 adjusted operating earnings of 25 cents per share, surpassing the Zacks Consensus Estimate of 23 cents. Results also surpassed 18 cents earned in the year-ago quarter.  Adjusted operating income in the quarter was $60.0 million, up 18% from $51.0 million in the fourth quarter of 2011.

Apart from improved operating performance of most segments, better-than-expected call and prepayment income and favorable mortality in the universal life and traditional life businesses drove operating earnings.

Including net realized investment gains of $10.8 million, fair value changes in embedded derivative liabilities of $2.6 million, loss on extinguishment of debt of $0.7 million and decrease in valuation allowance for deferred tax assets of $25.8 million, the company reported net income of $101.2 million or 41 cents per share, comparing favorably with net income of $64.4 million or 23 cents per share.

CNO Financial’s revenues inched up 1% to $1.06 billion from $1.05 billion in the prior-year quarter. Total revenue also surpassed the Zacks Consensus Estimate of $1.03 billion. Total new annualized premium increased 2% year over year to $105.7 million. Total benefits and expenses declined 0.6% year over year to $943.1 million.

Segment Update

Pre-tax operating earnings in the Bankers Life segment declined 4.5% year over year to $73.7 million in the reported quarter.

Washington National’s pre-tax operating earnings were $34.6 million in the quarter, surging 20% from the year-ago quarter.

Pre-tax operating income of Colonial Penn increased to $3.2 million from $1.8 million in the comparable quarter last year. The adoption of the new accounting standard related to deferred acquisition costs had a material impact on the results of this segment as CNO Financial could not defer the segment’s advertising costs. Consequently, the company expects a pre-tax loss of $5–$10 million in 2013 based on its advertising plan. Most of this loss is expected in the first quarter of 2013.

Other CNO Business reported pre-tax operating income of $5.2 million in the quarter.

Corporate Operations, which includes investment advisory subsidiary and corporate expenses, narrowed pre-tax loss to $2.7 million from $8.4 million in the year-ago quarter, on the basis of improved investment income.

Full Year 2012 Highlights

Full-year operating earnings came in at 69 cents, a cent ahead of the Zacks Consensus Estimate of 68 cents and 13% above 61 cents earned in 2011. Operating earnings in 2012 were $180.4 million, up 19% over the prior year.

The company reported net income of $221.0 million or 83 cents per share compared with $335.7 million or $1.15 per share in 2011.

Full-year revenue grossed $4.34 billion, increasing 5% over 2011. Total revenue also surpassed the Zacks Consensus Estimate of $4.26 billion. Full-year total benefits and expenses increased 10% over 2011 to $4.2 billion.

Financial Update

During 2012, the consolidated statutory risk-based capital ratio of CNO Financial’s insurance subsidiaries increased 9 percentage points to 367%, driven by statutory earnings of $337 million and dividend of $265 million paid to non-insurance holding companies.

In addition, unrestricted cash and investments held by CNO Financial’s non-insurance subsidiaries decreased to $294 million as of Dec 31, 2012 from 313.6 million as of Sep 30, 2012 due to share buyback, dividend payment and debt repayment.

CNO Financial bought back 21.5 million shares for $180 million in 2012. The company also redeemed $200 million worth of convertible debentures for $355 million during the year.

As of Dec 31, 2012, debt-to-total capital ratio, excluding accumulated other comprehensive income (loss), increased 240 basis points over 2011 end to 20.7% due to the company’s recent recapitalization plan. Book value per common share, excluding accumulated other comprehensive income (loss), increased to $17.39 as of Dec 31, 2012 from $15.88 as of Dec 31, 2011.

As of Dec 31, 2012, CNO Financial had total assets worth $34.1 billion and shareholders’ equity stood at $5.0 billion.

Zacks Rank

CNO Financial carries a Zacks Rank #3 (Hold).  Other multi-line insurers worth considering are Ageas SA/NV (AGESY), Assured Guaranty Ltd. (AGO - Snapshot Report) and AXA Group (AXAHY). All these companies carry a Zacks Rank #1 (Strong Buy).

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