PR Newswire | Aug 4, 2020 04:16PM EDT

08/04 15:15 CDT

CNO Financial Group Reports Second Quarter 2020 ResultsSolid second quarter with earnings per share up 138%; capital and liquidity remain strong CARMEL, Ind., Aug. 4, 2020

CARMEL, Ind., Aug. 4, 2020 /PRNewswire/ -- CNO Financial Group, Inc. (NYSE: CNO) today announced that for the quarter ending June 30, 2020, net income was $82.0 million, or $0.57 per diluted share compared to net income of $37.6 million, or $0.24 per diluted share in 2Q19. Net operating income (1) in 2Q20 was $79.4 million, or $0.55 per diluted share, compared to $76.4 million, or $0.48 per diluted share in 2Q19.

"I am very pleased with the solid second quarter results we delivered in the face of a highly challenging environment," said Gary C. Bhojwani, chief executive officer. "We experienced improving sales trends across the enterprise and finished the quarter with robust levels of capital and liquidity. The resiliency of our business model continues to enable CNO to navigate the COVID-19 pandemic from a position of strength."

"CNO remains well positioned as we enter the second half of this unprecedented year. During these difficult times, our middle-income consumers need the financial guidance and protection products we offer more than ever. I am very proud of the unwavering hard work and commitment of our associates and agents as they continue to pull together to support our customers and communities."

Highlights

* Net income of $82.0 million up 118% from 2Q19 * Operating (1) EPS increased 15% from 2Q19 to $0.55 * Insurance product margin up 28% from 2Q19 * Direct-to-consumer sales up 52% from 2Q19, to a record $29.7 million * Continued strong cash flow generation, reflecting 114% net operating income conversion * Returned $47.4 million to shareholders in the form of share repurchases ($30.0 million) and dividends ($17.4 million); reduced weighted average share count by 10% since 2Q19 * Generated return on equity (ROE) of 8.7%; operating ROE, as adjusted (6), of 11.4% * Operating (1) EPS and insurance product margin positively impacted by significant items summarized in note (7)

FINANCIAL SUMMARY

Quarter End

(Amounts in millions, except per share data)

(Unaudited)

Net operating income, a non-GAAP^(a) financial measure, is used consistently byCNO's management to evaluate the operating performance of the Company and is ameasure commonly used in the life insurance industry. It differs from netincome primarily because it excludes certain non-operating items such asrealized investment gains (losses), changes in fair values of embeddedderivatives, equity securities and the liability for a deferred compensationplan, and certain significant and unusual items included in net income. Management believes an analysis of net operating income is important inunderstanding the profitability and operating trends of the Company'sbusiness. Net income is the most directly comparable GAAP measure.

Per diluted share

Quarter ended Quarter ended

June 30, June 30,

2020 2019 % 2020 2019 % change change

Income from insurance products^ (b) $ 0.88 $ 0.40 120 $ 127.3 $ 63.9 99

Fee income 0.04 0.03 33 5.2 4.4 18

Investment income not allocated to product lines^ (c) 0.06 0.30 (80) 8.2 48.3 (83)

Expenses not allocated to product lines (0.27) (0.12) (125) (38.5) (19.9) (93)

Operating earnings before taxes 0.71 0.61 102.2 96.7

Income tax expense on operating income (0.16) (0.13) (23) (22.8) (20.3) (12)

Net operating income (1) 0.55 0.48 15 79.4 76.4 4

Net realized investment gains (losses) from sales,impairments and change in allowance for credit losses 0.09 (0.01) 12.3 (1.7)(net of related amortization)

Net change in market value of investments recognized 0.21 0.04 31.2 6.8in earnings

Fair value changes in embedded derivative liabilities (0.19) (0.22) (27.1) (35.9)(net of related amortization)

Loss on extinguishment of debt - (0.04) - (7.3)

Other (0.09) (0.07) (13.2) (10.9)

Non-operating income (loss) before taxes 0.02 (0.30) 3.2 (49.0)

Income tax expense (benefit) on non-operating income - (0.06) 0.6 (10.2)(loss)

Net non-operating income (loss) 0.02 (0.24) 2.6 (38.8)

Net income $ 0.57 $ 0.24 $ 82.0 $ 37.6

Weighted average diluted shares outstanding 143.9 159.7



(a)GAAP is defined as accounting principles generally accepted in the United States of America.

Income from insurance products is the sum of the insurance margins of the annuity, health, life and long-term care segments, less allocated insurance administrative expenses. It excludes the fee income segment, (b)excess investment income, parent company expenses and income taxes. Insurance margin is management's measure of the profitability of its annuity, health, life and long-term care segments' performance and consists of premiums plus allocated investment income less insurance policy benefits, interest credited, commissions, advertising expense and amortization of acquisition costs.

Investment income not allocated to product lines is defined as net investment income less: (i) equity returns credited to policyholder (c)account balances; (ii) the investment income allocated to our product lines; (iii) interest expense on notes payable and investment borrowings; and (iv) certain expenses related to benefit plans that are offset by special-purpose investment income.

FINANCIAL SUMMARY (continued)

Management vs. GAAP Measures

(Dollars in millions, except per share data)

(Unaudited)

Shareholders' equity, excluding accumulated other comprehensive income, andbook value per share, excluding accumulated other comprehensive income, arenon-GAAP measures that are utilized by management to view the business withoutthe effect of accumulated other comprehensive income which is primarilyattributable to fluctuations in interest rates associated with fixedmaturities, available for sale. Management views the business in this mannerbecause the Company has the ability and generally, the intent, to holdinvestments to maturity and meaningful trends can be more easily identifiedwithout the fluctuations.

Quarter ended

June 30,

2020 2019

Trailing twelve months return on equity^ (a) 8.7 % (10.9) %

Trailing twelve months operating return, excludingsignificant items, on equity, excluding accumulated 10.5 % 10.9 %other comprehensive income and net operating losscarryforwards (a non-GAAP financial measure) (6)

Shareholders' equity $ 4,731.2 $ 4,252.2

Accumulated other comprehensive income (1,520.2) (1,098.2)

Shareholders' equity, excluding accumulated other 3,211.0 3,154.0comprehensive income

Net operating loss carryforwards (426.8) (451.1)

Shareholders' equity, excluding accumulated othercomprehensive income and net operating loss $ 2,784.2 $ 2,702.9carryforwards

Book value per diluted share $ 33.22 $ 26.97

Accumulated other comprehensive income (10.67) (6.97)

Book value per diluted share, excluding accumulatedother comprehensive income (a non-GAAP financial $ 22.55 $ 20.00measure) (2)



(a)Calculated using average shareholders' equity for the measurement period.

CONTINUING INSURANCE OPERATIONSComparing 2Q2020 with 2Q2019

Annuity products accounted for 49 percent of the Company's margin for thequarter.

Annuity premiums collected decreased 29 percent, reflecting pricing disciplineand current market conditions, while annuity account values increased 4percent.

Health products accounted for 32 percent of CNO's insurance margin for thequarter and 58 percent of insurance policy income.

Life products accounted for 14 percent of the Company's insurance margin forthe quarter and 31 percent of insurance policy income.

Long-term care products accounted for 5 percent of CNO's insurance margin forthe quarter and 11 percent of insurance policy income

Sales of health products decreased by 55 percent, sales of life products wereup 20 percent and sales of long-term care products were down 33 percent.

ANNUITY COLLECTED PREMIUMS

(Dollars in millions)

(Unaudited)

Quarter ended June 30,

2020 2019 % change

Annuity collected premiums $ 242.7 $ 341.2 (29)

INSURANCE POLICY INCOME

(Dollars in millions)

(Unaudited)

Quarter ended June 30,

2020 2019 % change

Annuity riders $ 4.5 $ 4.2 7

Health 360.1 358.1 1

Life 194.3 189.0 3

Long-term care 66.4 67.0 (1)

Total insurance policy income $ 625.3 $ 618.3 1

SALES MEASURED AS NEW ANNUALIZED PREMIUMS FOR

LIFE AND HEALTH PRODUCTS

(Dollars in millions)

(Unaudited)

Quarter ended June 30,

2020 2019 % change

Health $ 17.7 $ 39.4 (55)

Life 47.4 39.4 20

Long-term care 4.3 6.4 (33)

Total new annualized premiums (4) $ 69.4 $ 85.2 (19)

INSURANCE MARGIN(Amounts in millions, except per share data)(Unaudited)

Insurance margin is management's measure of profitability of its annuity,health, life and long-term care segments' performance and consists of premiumsplus allocated investment income less insurance policy benefits, interestcredited, commissions, advertising expense and amortization of acquisitioncosts. Income from insurance products is the sum of the insurance margins ofthe annuity, health, life and long-term care segments, less allocated insuranceadministrative expenses. It excludes the fee income segment, excess investmentincome, parent company expenses and income taxes. Management believes thisinformation helps provide a better understanding of the business and a moremeaningful analysis of our operations. Insurance income, a non-GAAP measure, isa component of net operating income, which is reconciled to net income in theFinancial Summary section above.

Quarter ended

% of % of June 30, insurance June 30, insurance % 2020 policy 2019 policy change income income

Margin

Annuity interest margin $ 123.8 $ 57.2 116

Life insurance interest margin 11.7 16.6 (30)

Total interest-sensitive margin 135.5 73.8 84

Insurance margin

Health 82.3 23 78.3 22 5

Life (a) 24.4 16 35.1 23 (30)

Long-term care 13.2 20 11.9 18 11

Total other insurance margin 119.9 21 125.3 22 (4)

Total insurance margin 255.4 199.1

Allocated expenses (128.1) (135.2)

Income from insurance products $ 127.3 $ 63.9

Per diluted share $ 0.88 $ 0.40

Weighted average diluted shares 143.9 159.7



Net of $16.2 million and $15.0 million of non-deferred television (a)advertising expense related to our direct distribution channel in the 2020 and 2019 periods, respectively.



Total allocated expenses were $128.1 million, down 5 percent from the year-ago quarter.

ANNUITY RESULTS BY PRODUCT TYPE

(Dollars in millions)

(Unaudited)

Annuity margin

Quarter ended

June 30,

2020 2019

Fixed index annuities $ 111.7 $ 41.5

Fixed interest annuities 0.8 12.5

Other annuities 11.3 3.2

Total $ 123.8 $ 57.2

Annuity collected premiums

Quarter ended

June 30,

2020 2019

Annuity collected $ 242.7 $ 341.2premiums

Average net insurance liabilities (5)

Quarter ended

June 30,

2020 2019

Fixed index annuities $ 7,056.3 $ 6,388.9

Fixed interest annuities 2,088.2 2,337.9

Other annuities 533.5 574.4

Total $ 9,678.0 $ 9,301.2

Margin/average net insurance liabilities ^(a)

Quarter ended

June 30,

2020 2019

Fixed index annuities 6.33 % 2.60 %

Fixed interest annuities 0.15 % 2.14 %

Other annuities 8.47 % 2.23 %

Total 5.12 % 2.46 %



(a)Defined as annualized quarterly annuity margin divided by average net insurance liabilities (5).

HEALTH INSURANCE RESULTS BY PRODUCT TYPE

(Dollars in millions)

(Unaudited)

Health margin

Quarter ended

June 30,

2020 2019

% of % of Amount insurance Amount insurance % policy policy change income income

Supplemental health and other health $ 40.4 24 $ 42.4 26 (5)

Medicare supplement 41.9 22 35.9 19 17

Total $ 82.3 23 $ 78.3 22 5

Health insurance policy income

Quarter ended

June 30,

2020 2019 % change

Supplemental health and other health $ 169.8 $ 164.4 3

Medicare supplement 190.3 193.7 (2)

Total $ 360.1 $ 358.1 1

Health NAP (4)

Quarter ended

June 30,

2020 2019 % change

Supplemental health and other health $ 8.8 $ 24.9 (65)

Medicare supplement 8.9 14.5 (39)

Total $ 17.7 $ 39.4 (55)

LIFE INSURANCE RESULTS BY PRODUCT TYPE

(Dollars in millions)

(Unaudited)

Life margin

Quarter ended

June 30,

2020 2019

% of % of Amount insurance Amount insurance % policy policy change income income

Life insurance interest margin $ 1.0 $ 1.3 (23)

Life insurance margin:

Traditional life 24.4 16 35.1 23 (30)

Interest sensitive life 10.7 28 15.3 41 (30)

Subtotal 35.1 18 50.4 27 (30)

Total margin $ 36.1 $ 51.7 (30)

Life insurance policy income

Quarter ended

June 30,

2020 2019 % change

Traditional life $ 155.6 $ 151.7 3

Interest sensitive life 38.7 37.3 4

Total $ 194.3 $ 189.0 3

Life NAP (4)

Quarter ended

June 30,

2020 2019 % change

Traditional life $ 41.5 $ 29.8 39

Interest sensitive life 5.9 9.6 (39)

Total $ 47.4 $ 39.4 20

Average net insurance liabilities (5) and interest margin

Quarter ended

June 30,

2020 2019 % change

Interest sensitive life $ 913.5 $ 860.7 6products

Interest margin/average net 0.44 % 0.60 % (27)insurance liabilities (5)

LONG-TERM CARE RESULTS

(Dollars in millions)

(Unaudited)

Long-term care margin

Quarter ended

June 30,

2020 2019

% of % of Amount insurance Amount insurance % policy policy change income income

Long-term care $ 13.2 20 $ 11.9 18 11

Long-term care insurance policy income

Quarter ended

June 30,

2020 2019 % change

Long-term care $ 66.4 $ 67.0 (1)

Long-term care NAP (4)

Quarter ended

June 30,

2020 2019 % change

Long-term care $ 4.3 $ 6.4 (33)

QUARTERLY AVERAGE PRODUCING AGENTS

Average Producing Agent Count

Quarter ended

June 30, %

2020 2019 change

Consumer

Producing agents 4,066 4,602 (12)

Financial representatives 602 595 1

Worksite 225 417 (46)

INVESTMENTS

INVESTMENT INCOME NOT ALLOCATED TO PRODUCT LINES

(Dollars in millions, except per share data)

Management uses investment income not allocated to product lines as the measureto evaluate the performance of the investment segment. It is defined as netinvestment income less the investment income allocated to our product segmentsand interest expense on debt. We also view investment income not allocated toproduct lines per diluted share as an important and useful measure to evaluateperformance of the investment segment as it takes into consideration our sharerepurchase program.

Quarter ended June 30,

2020 2019 % change

Net investment income $ 318.8 $ 334.5 (5)

Allocated to product lines:

Annuity (116.6) (114.8) 2

Health (36.1) (35.8) 1

Life (34.7) (34.8) -

Long-term care (34.0) (34.0) -

Equity returns credited to policyholder account balances (50.7) (23.1) 119

Amounts allocated to product lines and credited to (272.1) (242.5) 12policyholder account balances

Amount related to variable interest entities and other (9.6) (16.0) (40)non-operating items

Interest expense on corporate debt (13.6) (12.6) 8

Interest expense on investment borrowings (5.8) (12.3) (53)

Less amounts credited to deferred compensation plans (9.5) (2.8) 239(offsetting investment income)

Total adjustments (38.5) $ (43.7)

Investment income not allocated to product lines $ 8.2 $ 48.3 (83)

Per share diluted share $ 0.06 $ 0.30

INVESTMENT PORTFOLIO(Dollars in millions)

The composition of the investment portfolio at June 30, 2020 is as follows:

$ % of total

Fixed maturities, available for sale, $ 22,167.9 85at fair value

Equity securities at fair value 60.5 -

Mortgage loans 1,459.9 6

Policy loans 124.3 -

Trading securities 240.6 1

Investments held by variable interest 1,137.4 4entities

Other invested assets 993.8 4

Total investment portfolio $ 26,184.4 100

Fixed maturities, available for sale, at amortized cost by asset class as ofJune 30, 2020 are as follows:

Investment Below grade investment Total grade

Corporate securities $ 10,908.4 $ 742.8 $ 11,651.2

United States Treasury securities andobligations of the United States 151.3 - 151.3government and agencies

States and political subdivisions 2,161.5 12.9 2,174.4

Debt securities issued by foreign 85.6 - 85.6governments

Asset-backed securities 1,084.6 87.8 1,172.4

Agency residential mortgage-backed 67.8 - 67.8securities

Non-agency residential mortgage-backed 907.9 1,092.4 (a) 2,000.3securities

Collateralized loan obligations 457.6 - 457.6

Commercial mortgage-backed securities 1,810.8 70.2 1,881.0

Total $ 17,635.5 $ 2,006.1 $ 19,641.6



Certain structured securities rated below investment grade by Nationally Recognized Statistical Rating Organizations may be assigned a NAIC 1 or (a)NAIC 2 designation based on the cost basis of the security relative to estimated recoverable amounts as determined by the National Association of Insurance Commissioners (NAIC).



The fair value of CNO's available for sale fixed maturity portfolio was $22.2billion compared with an amortized cost of $19.6 billion. Net unrealized gains were comprised of gross unrealized gains of $2.7 billion and gross unrealized losses of $151 million. The allowance for credit losses was $10.8million at June 30, 2020.



At amortized cost and fair value, 90 percent and 91 percent of fixed maturities, available for sale, were rated "investment grade", respectively.



Acquisitions of fixed maturity investments during the quarter totaled $2.2 billion. Comparable information for acquisitions of fixed maturity investments is as follows:



Fixed maturity acquisitions

Quarter ended

June 30,

2020 2019

Total fixed maturity acquisitions $ 2,178.3 $ 1,644.6

Annual effective yield 3.74 4.19

Average rating BBB+ A-

Average life (in years) 4.6 7.0

Non-Operating ItemsNet realized investment gains in 2Q20 were $12.3 million (net of related amortization) including the favorable change in the allowance for credit losses of $15.9 million which were recorded in earnings. Net realized investment losses in 2Q19 were $1.7 million (net of related amortization). There were no other-than-temporary impairment losses recognized in 2Q19.

During 2Q20 and 2Q19, we recognized an increase in earnings of $31.2 million and $6.8 million, respectively, due to the net change in market value of investments recognized in earnings.

During 2Q20 and 2Q19, we recognized a decrease in earnings of $27.1 million and $35.9 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 2Q20 and 2Q19, we recognized a decrease in earnings of $13.2 million and $11.6 million, respectively, 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.

The results for 2Q19 include a $7.3 million loss on the extinguishment of debt related to the completion of our previously announced debt refinancing transaction.

Statutory (based on non-GAAP measures) and GAAP Capital InformationOur consolidated statutory risk-based capital ratio was estimated at 405% at June 30, 2020, reflecting estimated 2Q20 statutory operating income of $94 million (and $228 million in the first six months of 2020) and the payment of insurance company dividends to the holding company of $62.5 million during 2Q20 and $130.3 million during the first six months of 2020. Statutory operating income and capital and surplus were favorably impacted by $99 million and $53 million, respectively, related to certain provisions in the Coronavirus Aid, Relief, and Economic Security ("CARES") Act in the first six months of 2020.

During the second quarter of 2020, we repurchased $30.0 million of common stock under our securities repurchase program. We repurchased 2.0 million common shares at an average cost of $15.24 per share. As of June 30, 2020, we had 141.7 million shares outstanding and had authority to repurchase up to an additional $419.3 million of our common stock. During 2Q20, dividends paid on common stock totaled $17.4 million.

Unrestricted cash and investments held by our holding company were $208 million at June 30, 2020, compared to $187 million at December 31, 2019.

Book value per common share was $33.38 at June 30, 2020 compared to $31.58 at December 31, 2019. Book value per diluted share, excluding accumulated other comprehensive income (loss) (2), was $22.55 at June 30, 2020, compared to $22.09 at December 31, 2019.

The debt-to-capital ratio was 17.3 percent and 17.5 percent at June 30, 2020 and December 31, 2019, respectively. Our debt-to-total capital ratio, excluding accumulated other comprehensive income (3) was 23.6 percent at June 30, 2020 compared to 23.0 percent at December 31, 2019.

Return on equity for the trailing four quarters ended June 30, 2020 and 2019, was 8.7% and (10.9)%, respectively. Operating return, excluding significant items, on equity, excluding accumulated other comprehensive income and net operating loss carryforwards (6) for the trailing four quarters ended June 30, 2020 and 2019, was 10.5% and 10.9%, 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, 2019 and any subsequent Form 10-Q 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 August 5, 2020 at 10:00 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 http://www.directeventreg.com/registration/event/1997748. 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.

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Dollars in millions)

(unaudited)

June 30, December 2020 31, 2019

ASSETS

Investments:

Fixed maturities, available for sale, at fair value(net of allowance for credit losses of $10.8 at June $ 22,167.9 $ 21,295.230, 2020; amortized cost: June 30, 2020 - $19,641.6;December 31, 2019 - $19,179.5)

Equity securities at fair value (cost: June 30, 2020 - 60.5 44.1$68.5; December 31, 2019 - $44.2)

Mortgage loans (net of allowance for credit losses of 1,459.9 1,566.1$11.6 at June 30, 2020)

Policy loans 124.3 124.5

Trading securities 240.6 243.9

Investments held by variable interest entities (net ofallowance for credit losses of $27.7 at June 30, 2020; 1,137.4 1,188.6amortized cost: June 30, 2020 - $1,223.7; December 31,2019 - $1,206.3)

Other invested assets 993.8 1,118.5

Total investments 26,184.4 25,580.9

Cash and cash equivalents - unrestricted 521.1 580.0

Cash and cash equivalents held by variable interest 36.8 74.7entities

Accrued investment income 205.3 205.9

Present value of future profits 263.4 275.4

Deferred acquisition costs 1,120.9 1,215.5

Reinsurance receivables (net of allowance for credit 4,712.6 4,785.7losses of $4.0 at June 30, 2020)

Income tax assets, net 428.8 432.6

Assets held in separate accounts 3.7 4.2

Other assets 502.5 476.0

Total assets $ 33,979.5 $ 33,630.9

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:

Liabilities for insurance products:

Policyholder account liabilities $ 12,171.3 $ 12,132.3

Future policy benefits 11,767.5 11,498.5

Liability for policy and contract claims 488.6 522.3

Unearned and advanced premiums 243.6 260.5

Liabilities related to separate accounts 3.7 4.2

Other liabilities 788.3 750.2

Investment borrowings 1,643.4 1,644.3

Borrowings related to variable interest entities 1,152.2 1,152.5

Notes payable - direct corporate obligations 989.7 989.1

Total liabilities 29,248.3 28,953.9

Commitments and Contingencies

Shareholders' equity:

Common stock ($0.01 par value, 8,000,000,000 sharesauthorized, shares issued and outstanding: June 30, 1.4 1.52020 - 141,718,570; December 31, 2019 - 148,084,178)

Additional paid-in capital 2,664.3 2,767.3

Accumulated other comprehensive income 1,520.2 1,372.5

Retained earnings 545.3 535.7

Total shareholders' equity 4,731.2 4,677.0

Total liabilities and shareholders' equity $ 33,979.5 $ 33,630.9

CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(Dollars in millions, except per share data)

(unaudited)

Three months ended Six months ended

June 30, June 30,

2020 2019 2020 2019

Revenues:

Insurance policy income $ 625.3 $ 618.3 $ 1,254.0 $ 1,237.6

Net investment income:

General account assets 231.7 284.9 512.0 553.7

Policyholder and other special-purpose portfolios 87.1 49.6 (23.6) 136.6

Realized investment gains (losses):

Net realized investment gains (losses) 27.9 5.3 (32.2) 23.6

Change in allowance for credit losses and other-than-temporary 15.9 - (39.5) (2.2)impairment losses (a)

Total realized gains (losses) 43.8 5.3 (71.7) 21.4

Fee revenue and other income 26.3 21.7 60.7 53.5

Total revenues 1,014.2 979.8 1,731.4 2,002.8

Benefits and expenses:

Insurance policy benefits 540.3 610.4 1,031.1 1,233.9

Interest expense 28.4 38.6 61.8 79.6

Amortization 88.5 46.2 138.7 104.4

Loss on extinguishment of debt - 7.3 - 7.3

Other operating costs and expenses 251.6 229.6 465.4 464.3

Total benefits and expenses 908.8 932.1 1,697.0 1,889.5

Income before income taxes 105.4 47.7 34.4 113.3

Income tax expense (benefit):

Tax expense on period income 23.4 10.1 7.6 23.9

Valuation allowance for deferred tax assets and other tax items - - (34.0) -

Net income $ 82.0 $ 37.6 $ 60.8 $ 89.4

Earnings per common share:

Basic:

Weighted average shares outstanding 143,421,000 158,816,000 144,625,000 159,882,000

Net income $ .57 $ .24 $ .42 $ .56

Diluted:

Weighted average shares outstanding 143,941,000 159,735,000 145,269,000 160,962,000

Net income $ .57 $ .24 $ .42 $ .56



(a)No portion of the other-than-temporary impairments recognized in the 2019 periods was included in accumulated other comprehensive income.



NOTES

Management believes that an analysis of Net income applicable to common stock before: (i) net realized investment gains or losses from sales, impairments and the change in allowance for credit losses, net of related amortization and taxes; (ii) net change in market value of investments recognized in earnings, net of taxes; (iii) fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities, net of related amortization and taxes; (iv) fair value changes related to the agent deferred compensation plan, net of taxes; (v) loss on extinguishment of debt, net of taxes; (vi) changes in the valuation allowance for deferred tax assets and other tax items; and (viii) other non-operating items (1)consisting primarily of earnings attributable to variable interest entities, net of taxes ("Net operating income," a non-GAAP financial measure) is important to evaluate the financial performance of the company, and is a key measure commonly used in the life insurance industry. Management uses this measure to evaluate performance because the items excluded from net operating income can be affected by events that are unrelated to the company's underlying fundamentals. A reconciliation of Net operating income to Net income applicable to common stock is provided in the table on page 2. Additional information concerning this non-GAAP measure is included in our periodic filings with the Securities and Exchange Commission that are available in the "Investors - SEC Filings" section of CNO's website, CNOinc.com.

Book value per diluted share reflects the potential dilution that could occur if outstanding stock options were exercised, restricted stock and performance units were vested and convertible securities were converted. The dilution from options, restricted shares and performance units is calculated using the treasury stock method. Under this method, we assume the proceeds from the exercise of the options (or the unrecognized compensation expense with respect to restricted stock and performance units) will be used to purchase shares of our common stock at the closing(2)market price on the last day of the period. The dilution from convertible securities is calculated assuming the securities were converted on the last day of the period. In addition, the calculation of this non-GAAP measure differs from the corresponding GAAP measure because accumulated other comprehensive income (loss) has been excluded from the value of capital used to determine this measure. Management believes this non-GAAP measure is useful because it removes the volatility that arises from changes in the unrealized appreciation (depreciation) of our investments.

The calculation of this non-GAAP measure differs from the corresponding GAAP measure because accumulated other comprehensive income (loss) has (3)been excluded from the value of capital used to determine this measure. Management believes this non-GAAP measure is useful because it removes the volatility that arises from changes in the unrealized appreciation (depreciation) of our investments.

Measured by new annualized premium for life and health products, which (4)includes 10% of single premium whole life deposits and 100% of all other premiums (excluding annuities). Medicare Advantage sales are not comparable to other sales and are therefore excluded in all periods.

Net insurance liabilities are equal to total insurance liabilities less: (5)(i) amounts related to reinsured business; (ii) deferred acquisition costs; (iii) present value of future profits; and (iv) the value of unexpired options credited to insurance liabilities.

The following summarizes the calculations of: (i) operating return on equity, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure); (ii) (6)operating return, excluding significant items, on equity, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure); and (iii) return on equity are as follows (dollars in millions):



Trailing twelve months ended

2Q20 2Q19

Net operating income $ 311.5 $ 289.5

Net operating income, excluding significant items $ 285.9 $ 304.6

Net income (loss) $ 380.8 $ (412.1)

Average common equity, excluding accumulated other

comprehensive income (loss) and net operating loss

carryforwards (a non-GAAP financial measure) $ 2,722.9 $ 2,782.7

Average common shareholders' equity $ 4,372.0 $ 3,795.5

Operating return on equity, excluding accumulated other

comprehensive income (loss) and net operating loss

carryforwards (a non-GAAP financial measure) 11.4 % 10.4 %

Operating return, excluding significant items, on equity, excluding

accumulated other comprehensive income (loss) and net

operating loss carryforwards (a non-GAAP financial measure) 10.5 % 10.9 %

Return on equity 8.7 % (10.9) %

The following summarizes: (i) operating earnings; (ii) significant items; (iii)operating earnings, excluding significant items; and (iv) net income (loss)(dollars in millions):

Net operating

Net operating income,

income, excluding Net

excluding significant income (loss) -

Net operating Significant significant items - trailing Net trailing

income items items four quarters income (loss) four quarters

3Q18 $ 87.5 $ - $ 87.5 $ 321.8 $ (529.8) $ (414.2)

4Q18 59.8 15.1 (a) 74.9 317.3 28.3 (315.0)

1Q19 65.8 - 65.8 310.1 51.8 (347.5)

2Q19 76.4 - 76.4 304.6 37.6 (412.1)

3Q19 69.2 - 69.2 286.3 42.0 159.7

4Q19 78.6 (7.9) (b) 70.7 282.1 278.0 409.4

1Q20 84.3 - 84.3 300.6 (21.2) 336.4

2Q20 79.4 (17.7) (c) 61.7 285.9 82.0 380.8

Comprised of: (i) $.9 million of unfavorable adjustments arising from our comprehensive annual actuarial review of assumptions; (ii) $14.4 million(a) unfavorable impact of current market conditions on the value of investments backing our Company-owned life insurance ("COLI") used as a vehicle to fund an agent deferred compensation plan; and (iii) a decrease in tax expense of $.2 million (changes in the value of COLI investments are not subject to income taxes).

Comprised of: (i) $10.0 million of unfavorable adjustments arising from(b) our comprehensive annual actuarial review of assumptions; (ii) $20.0 million of the net favorable impact from legal and regulatory matters; and (iii) an increase in tax expense of $2.1 million.

Comprised of: (i) $45.9 million of net favorable adjustments arising from(c) our review of actuarial assumptions; (ii) $23.5 million unfavorable impact related to regulatory matters; and (iii) an increase in tax expense of $4.7 million.

A reconciliation of pretax operating earnings (a non-GAAP financial measure) tonet income (loss) is as follows (dollars in millions):

Twelve months ended

2Q20 2Q19

Pretax operating earnings (a non-GAAP financial measure) $ 395.9 $ 362.3

Income tax expense (84.4) (72.8)

Net operating income 311.5 289.5

Non-operating items:

(46.9) 24.1Net realized investment gains (losses) from sales and impairments,net of related amortization

Net change in market value of investments recognized in earnings (15.1) (9.4)

Fair value changes in embedded derivative liabilities, net of (109.7) (43.4)related amortization

Fair value changes related to the agent deferred compensation plan (16.7) (16.0)

Loss on reinsurance transaction - (704.2)

Loss on extinguishment of debt - (7.3)

Other (12.2) 4.5

Non-operating loss before taxes (200.6) (751.7)

Income tax expense (benefit):

On non-operating loss (42.2) (157.9)

Valuation allowance for deferred tax assets and other tax items (227.7) 107.8

Net non-operating income (loss) 69.3 (701.6)

Net income (loss) $ 380.8 $ (412.1)

A reconciliation of consolidated capital, excluding accumulated othercomprehensive income (loss) and net operating loss carryforwards (a non-GAAPfinancial measure) to common shareholders' equity, is as follows (dollars inmillions):

1Q18 2Q18 3Q18 4Q18

Consolidated capital, excluding accumulated other comprehensive

income (loss) and net operating loss carryforwards

(a non-GAAP financial measure) $ 3,318.7 $ 3,366.0 $ 2,705.8 $ 2,687.3

Net operating loss carryforwards 404.2 388.7 510.6 505.9

Accumulated other comprehensive income 894.3 700.2 403.5 177.7

Common shareholders' equity $ 4,617.2 $ 4,454.9 $ 3,619.9 $ 3,370.9

1Q19 2Q19 3Q19 4Q19

Consolidated capital, excluding accumulated other comprehensive

income (loss) and net operating loss carryforwards

(a non-GAAP financial measure) $ 2,703.4 $ 2,702.9 $ 2,685.0 $ 2,761.9

Net operating loss carryforwards 479.6 451.1 425.4 542.6

Accumulated other comprehensive income 654.9 1,098.2 1,442.9 1,372.5

Common shareholders' equity $ 3,837.9 $ 4,252.2 $ 4,553.3 $ 4,677.0

1Q20 2Q20

Consolidated capital, excluding accumulated other comprehensive

income (loss) and net operating loss carryforwards

(a non-GAAP financial measure) $ 2,701.2 $ 2,784.2

Net operating loss carryforwards 469.4 426.8

Accumulated other comprehensive income 595.2 1,520.2

Common shareholders' equity $ 3,765.8 $ 4,731.2

A reconciliation of consolidated capital, excluding accumulated othercomprehensive income (loss) and net operating loss carryforwards (a non-GAAPfinancial measure) to common shareholders' equity, is as follows (dollars inmillions):

Trailing four quarter average

2Q20 2Q19

Consolidated capital, excluding accumulated other comprehensive

income (loss) and net operating loss carryforwards

(a non-GAAP financial measure) $ 2,722.9 $ 2,782.7

Net operating loss carryforwards 469.1 479.0

Accumulated other comprehensive income 1,180.0 533.8

Common shareholders' equity $ 4,372.0 $ 3,795.5

The table below summarizes the financial impact of significant items on (7)our 2Q20 net operating income. Management believes that identifying the impact of these items enhances the understanding of our operating results.

Three months ended

June 30, 2020

Actual Significant Excluding results items significant items

Insurance product margin

Annuity margin $ 123.8 $ 40.0 (a) $ 72.3

(91.5) (a)

Health margin 82.3 - 82.3

Life margin 36.1 5.6 (a) 41.7

Long-term care margin 13.2 - 13.2

Total insurance product margin 255.4 (45.9) 209.5

Allocated expenses (128.1) - (128.1)

Income from insurance products 127.3 (45.9) 81.4

Fee income 5.2 - 5.2

Investment income not allocated to product lines 8.2 - 8.2

Expenses not allocated to product lines (38.5) 23.5 (b) (15.0)

Operating earnings before taxes 102.2 (22.4) 79.8

Income tax (expense) benefit on operating income (22.8) 4.7 (18.1)

Net operating income $ 79.4 $ (17.7) $ 61.7

Net operating income per diluted share $ 0.55 $ (0.12) $ 0.43



Given our expectation that interest rates will remain low for the long-term, we performed an actuarial unlocking exercise in the second quarter of 2020 to reflect our assumption that average new money rates will remain flat at 4 percent forever. This change and the related (a)impacts to persistency assumptions had a $45.6 million unfavorable impact on pre-tax earnings. As part of the actuarial unlocking exercise, we also changed our assumptions related to the future option costs we incur in providing benefits on fixed index annuities which had a favorable impact on pre-tax earnings of $91.5 million. The impact of these changes in assumptions is summarized below (dollars in millions):



Line of business

Fixed index Fixed interest Interest- annuities sensitive life Total annuities

Favorable (unfavorable)

Impacts of an average new money rateassumption of 4 percent

Insurance policy benefits $ (5.0) $ - $ (7.4) $ (12.4)

Amortization (25.6) (9.4) 1.8 (33.2)

Subtotal (30.6) (9.4) (5.6) (45.6)

Impacts of changes in future option costs

Insurance policy benefits 104.8 - - 104.8

Amortization (13.3) - - (13.3)

Subtotal 91.5 - - 91.5

Impact on pre-tax income $ 60.9 $ (9.4) $ (5.6) $ 45.9



This actuarial unlocking exercise does not replace our comprehensive annual review of all assumptions for our insurance products, which we plan to complete in the fourth quarter of this year. Additional adjustments may be identified based on the results of the comprehensive annual review.



We increased our liability for claims and interest pursuant to the previously disclosed Global Resolution Agreement entered into in November 2018. Pursuant to this agreement, a third-party auditor is acting on behalf of 41 states and the District of Columbia for the purpose of (b)identifying deceased insureds and contract holders where benefits are payable pursuant to unclaimed property laws. The third-party auditor has provided information that we have processed and verified allowing us to more accurately estimate the ultimate liability pursuant to this agreement.

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SOURCE CNO Financial Group, Inc.