Exhibit 99.1
CNO Segmentation
October 28, 2010
CNO Financial Group
2
Forward-Looking Statements
Cautionary Statement Regarding Forward-Looking Statements. Our statements, trend analyses and other information contained in this
press release relative to markets for CNO Financial’s products and trends in CNO Financial’s operations or financial results, as well as other
statements, contain forward-looking statements within the meaning of the federal securities laws and the Private Securities Litigation Reform
Act of 1995. Forward-looking statements typically are identified by the use of terms such as “anticipate,” “believe,” “plan,” “estimate,” “expect,”
“project,” “intend,” “may,” “will,” “would,” “contemplate,” “possible,” “attempt,” “seek,” “should,” “could,” “goal,” “target,” “on track,” “comfortable
with,” “optimistic” and similar words, although some forward-looking statements are expressed differently. You should consider statements that
contain these words carefully because they describe our expectations, plans, strategies and goals and our beliefs concerning future business
conditions, our results of operations, financial position, and our business outlook or they state other ‘‘forward-looking’’ information based on
currently available information. Assumptions and other important factors that could cause our actual results to differ materially from those
anticipated in our forward-looking statements include, among other things: (i) changes in or sustained low interest rates causing a reduction in
investment income, the margins of our subsidiaries’ fixed annuity and life insurance businesses and demand for their products; (ii) general
economic, market and political conditions, including the performance and fluctuations of the financial markets which may affect our ability to
raise capital or refinance existing indebtedness and the cost of doing so; (iii) our ability to generate sufficient liquidity to meet our debt service
obligations and other cash needs; (iv) our ability to obtain adequate and timely rate increases on our health products, including our long-term
care business; (v) the receipt of any required regulatory approvals for dividend and surplus debenture interest payments from our insurance
subsidiaries; (vi) mortality, morbidity, the increased cost and usage of health care services, persistency, the adequacy of our previous reserve
estimates and other factors which may affect the profitability of our insurance products; (vii) changes in our assumptions related to deferred
acquisition costs or the present value of future profits; (viii) the recoverability of our deferred tax assets and the effect of potential ownership
changes and tax rate changes on their value; (ix) our assumption that the positions we take on our tax return filings, including our position that
our 7.0% convertible senior debentures due 2016 will not be treated as stock for purposes of Section 382 of the Internal Revenue Code of
1986, as amended, and will not trigger an ownership change, will not be successfully challenged by the Internal Revenue Service; (x) changes
in accounting principles and the interpretation thereof; (xi) our ability to continue to satisfy the financial ratio and balance requirements and other
covenants of our debt agreements; (xii) our ability to achieve anticipated expense reductions and levels of operational efficiencies including
improvements in claims adjudication and continued automation and rationalization of operating systems, (xiii) performance and valuation of our
investments, including the impact of realized losses (including other-than-temporary impairment charges); (xiv) our ability to identify products
and markets in which we can compete effectively against competitors with greater market share, higher ratings, greater financial resources and
stronger brand recognition; (xv) the ultimate outcome of lawsuits filed against us and other legal and regulatory proceedings to which we are
subject; (xvi) our ability to complete the remediation of the material weakness in internal controls over our actuarial reporting process and to
maintain effective controls over financial reporting; (xvii) our ability to continue to recruit and retain productive agents and distribution partners
and customer response to new products, distribution channels and marketing initiatives; (xviii) our ability to achieve eventual upgrades of the
financial strength ratings of CNO Financial and our insurance company subsidiaries as well as the impact of our ratings on our business, our
ability to access capital and the cost of capital; (xix) the risk factors or uncertainties listed from time to time in our filings with the Securities and
Exchange Commission; (xx) regulatory changes or actions, including those relating to regulation of the financial affairs of our insurance
companies, such as the payment of dividends and surplus debenture interest to us, regulation of financial services affecting (among other
things) bank sales and underwriting of insurance products, regulation of the sale, underwriting and pricing of products, and health care
regulation affecting health insurance products; and (xxi) changes in the Federal income tax laws and regulations which may affect or eliminate
the relative tax advantages of some of our products. Other factors and assumptions not identified above are also relevant to the forward-
looking statements, and if they prove incorrect, could also cause actual results to differ materially from those projected. All forward-looking
statements are expressly qualified in their entirety by the foregoing cautionary statements. Our forward-looking statements speak only as of the
date made. We assume no obligation to update or to publicly announce the results of any revisions to any of the forward-looking statements to
reflect actual results, future events or developments, changes in assumptions or changes in other factors affecting the forward-looking
statements.
press release relative to markets for CNO Financial’s products and trends in CNO Financial’s operations or financial results, as well as other
statements, contain forward-looking statements within the meaning of the federal securities laws and the Private Securities Litigation Reform
Act of 1995. Forward-looking statements typically are identified by the use of terms such as “anticipate,” “believe,” “plan,” “estimate,” “expect,”
“project,” “intend,” “may,” “will,” “would,” “contemplate,” “possible,” “attempt,” “seek,” “should,” “could,” “goal,” “target,” “on track,” “comfortable
with,” “optimistic” and similar words, although some forward-looking statements are expressed differently. You should consider statements that
contain these words carefully because they describe our expectations, plans, strategies and goals and our beliefs concerning future business
conditions, our results of operations, financial position, and our business outlook or they state other ‘‘forward-looking’’ information based on
currently available information. Assumptions and other important factors that could cause our actual results to differ materially from those
anticipated in our forward-looking statements include, among other things: (i) changes in or sustained low interest rates causing a reduction in
investment income, the margins of our subsidiaries’ fixed annuity and life insurance businesses and demand for their products; (ii) general
economic, market and political conditions, including the performance and fluctuations of the financial markets which may affect our ability to
raise capital or refinance existing indebtedness and the cost of doing so; (iii) our ability to generate sufficient liquidity to meet our debt service
obligations and other cash needs; (iv) our ability to obtain adequate and timely rate increases on our health products, including our long-term
care business; (v) the receipt of any required regulatory approvals for dividend and surplus debenture interest payments from our insurance
subsidiaries; (vi) mortality, morbidity, the increased cost and usage of health care services, persistency, the adequacy of our previous reserve
estimates and other factors which may affect the profitability of our insurance products; (vii) changes in our assumptions related to deferred
acquisition costs or the present value of future profits; (viii) the recoverability of our deferred tax assets and the effect of potential ownership
changes and tax rate changes on their value; (ix) our assumption that the positions we take on our tax return filings, including our position that
our 7.0% convertible senior debentures due 2016 will not be treated as stock for purposes of Section 382 of the Internal Revenue Code of
1986, as amended, and will not trigger an ownership change, will not be successfully challenged by the Internal Revenue Service; (x) changes
in accounting principles and the interpretation thereof; (xi) our ability to continue to satisfy the financial ratio and balance requirements and other
covenants of our debt agreements; (xii) our ability to achieve anticipated expense reductions and levels of operational efficiencies including
improvements in claims adjudication and continued automation and rationalization of operating systems, (xiii) performance and valuation of our
investments, including the impact of realized losses (including other-than-temporary impairment charges); (xiv) our ability to identify products
and markets in which we can compete effectively against competitors with greater market share, higher ratings, greater financial resources and
stronger brand recognition; (xv) the ultimate outcome of lawsuits filed against us and other legal and regulatory proceedings to which we are
subject; (xvi) our ability to complete the remediation of the material weakness in internal controls over our actuarial reporting process and to
maintain effective controls over financial reporting; (xvii) our ability to continue to recruit and retain productive agents and distribution partners
and customer response to new products, distribution channels and marketing initiatives; (xviii) our ability to achieve eventual upgrades of the
financial strength ratings of CNO Financial and our insurance company subsidiaries as well as the impact of our ratings on our business, our
ability to access capital and the cost of capital; (xix) the risk factors or uncertainties listed from time to time in our filings with the Securities and
Exchange Commission; (xx) regulatory changes or actions, including those relating to regulation of the financial affairs of our insurance
companies, such as the payment of dividends and surplus debenture interest to us, regulation of financial services affecting (among other
things) bank sales and underwriting of insurance products, regulation of the sale, underwriting and pricing of products, and health care
regulation affecting health insurance products; and (xxi) changes in the Federal income tax laws and regulations which may affect or eliminate
the relative tax advantages of some of our products. Other factors and assumptions not identified above are also relevant to the forward-
looking statements, and if they prove incorrect, could also cause actual results to differ materially from those projected. All forward-looking
statements are expressly qualified in their entirety by the foregoing cautionary statements. Our forward-looking statements speak only as of the
date made. We assume no obligation to update or to publicly announce the results of any revisions to any of the forward-looking statements to
reflect actual results, future events or developments, changes in assumptions or changes in other factors affecting the forward-looking
statements.
CNO Financial Group
3
Non-GAAP Measures
This presentation contains certain financial measures that differ from the comparable
measures under Generally Accepted Accounting Principles (GAAP). Reconciliations
between those non-GAAP measures and the comparable GAAP measures are included
in the Appendix, or on the page such measure is presented.
measures under Generally Accepted Accounting Principles (GAAP). Reconciliations
between those non-GAAP measures and the comparable GAAP measures are included
in the Appendix, or on the page such measure is presented.
While management believes these measures are useful to enhance understanding and
comparability of our financial results, these non-GAAP measures should not be
considered substitutes for the most directly comparable GAAP measures.
comparability of our financial results, these non-GAAP measures should not be
considered substitutes for the most directly comparable GAAP measures.
Additional information concerning non-GAAP measures 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, www.CNOinc.com.
with the Securities and Exchange Commission that are available in the “Investors - SEC
Filings” section of CNO’s website, www.CNOinc.com.
CNO Financial Group
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Splitting the CIG Segment
§ Two new segments, consistent with how we are managing our business
– Washington National (primarily actively sold lines of business)
– Other CNO Business - “OCB” (primarily closed blocks of business)
§ Another step toward increased transparency
– Provides greater visibility into the performance of our actively sold lines
of business
of business
– Sharpens focus on improving results of our closed blocks of business
§ Begin reporting on new segmented basis with 3Q2010 results
– Providing restated financial information for prior periods
– Refined segment operating return on allocated capital calculations
– Made certain changes to our terminology
CNO Financial Group
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Operating Return on Allocated Capital
§ Capital allocation to insurance segments based on 275% RBC
– Return on allocated capital is consistent with how the company manages
its capital
its capital
– Consistent with the company’s intent to hold excess capital in our non-
life holding company
life holding company
– Consolidated 300% RBC target is unchanged; consolidated RBC
benefits from total enterprise size and diversification (Actual 6/30/10
RBC was 318%)
benefits from total enterprise size and diversification (Actual 6/30/10
RBC was 318%)
§ Allocation of debt to allow for a more meaningful comparison to industry
peers
peers
CNO Financial Group
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Relative Size
Average Liabilities for Insurance Products * | |||||
Interest Sensitive Life | Non-Interest Sensitive Life | Annuities | Health | Total | |
Washington National | - | $206.5 | - | $2,485.5 ** | $2,692.0 |
OCB | $2,593.7 | $839.9 | $1,614.9 | $480.1 *** | $5,528.6 |
Total | $2,593.7 | $1,046.4 | $1,614.9 | $2,965.6 | $8,220.6 |
* 2Q2010 average liabilities for insurance products net of reinsurance ceded
** Primarily Supplemental Health and Medicare Supplement
*** Primarily Long Term Care Insurance
($ millions)
CNO Financial Group
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Re-Segmented Quarterly Earnings
Washington National
($ millions)
Management believes that an analysis of income before net realized investment gains (losses), net of related amortization (a non-GAAP
financial measure), is important to evaluate the financial performance of our business, and is a measure commonly used in the life insurance
industry. Management uses this measure to evaluate performance because realized gains or losses can be affected by events that are
unrelated to a company’s underlying fundamentals.
financial measure), is important to evaluate the financial performance of our business, and is a measure commonly used in the life insurance
industry. Management uses this measure to evaluate performance because realized gains or losses can be affected by events that are
unrelated to a company’s underlying fundamentals.
CNO Financial Group
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Re-Segmented Quarterly Earnings
OCB
($ millions)
Management believes that an analysis of income before net realized investment gains (losses), net of related amortization (a non-GAAP
financial measure), is important to evaluate the financial performance of our business, and is a measure commonly used in the life insurance
industry. Management uses this measure to evaluate performance because realized gains or losses can be affected by events that are
unrelated to a company’s underlying fundamentals.
financial measure), is important to evaluate the financial performance of our business, and is a measure commonly used in the life insurance
industry. Management uses this measure to evaluate performance because realized gains or losses can be affected by events that are
unrelated to a company’s underlying fundamentals.
CNO Financial Group
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Adjusted operating earnings for the purpose of calculating operating return on allocated
capital is determined as follows:
capital is determined as follows:
Allocated capital is calculated as follows:
* A non-GAAP financial measure. Refer to the Appendix for a reconciliation to the corresponding GAAP measure.
Operating Return on Allocated Capital: 12.3% 9.9% 7.7% -5.0% -12.4% 6.0%
Operating Return on Allocated Capital Computation*
CNO Financial Group
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2Q10 Operating Return on Allocated Capital vs.
Previous Return on Equity Calculation
Previous Return on Equity Calculation
Bankers Life | Colonial Penn | Washington National | OCB | Corp | Total | |
Trailing 4 Quarter Operating Return on Allocated Capital | 12.3% | 7.7% | 9.9% | -5.0% | -12.4% | 6.0% |
Trailing 4 Quarter Operating Return on Equity as previously reported | 11.6% | 12.0% | CIG 0.2%* | -1.0% | 6.0% |
* Trailing 4 Quarter Operating Return on Equity as previously reported for CIG was
0.2%, which included both Washington National and OCB.
0.2%, which included both Washington National and OCB.
§ Previously, segment capital was based on historical statutory balance adjusted for earnings. Current
segment capital is based on 275% RBC.
segment capital is based on 275% RBC.
§ Previously, overhead was allocated to segments for operating return on equity. Current Corporate
operating return contains all overhead.
operating return contains all overhead.
§ No changes to the previously reported segment earnings for Bankers, Colonial Penn and Corporate
CNO Financial Group
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We will also be making the following terminology changes in our financial reports to more
accurately describe our business and/or for consistency with industry peers.
accurately describe our business and/or for consistency with industry peers.
(1) Includes specified disease, accident, and hospital indemnity products
(2) Includes supplemental health, Medicare supplement, and long term care products
Terminology Changes
CNO Financial Group
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§ The split of CIG into two segments:
– Consistent with how we are managing our business
– Gives greater line of sight into the performance of currently sold lines of
business
business
– Sharpens focus on improving results of closed blocks
§ Moving to an operating return on allocated capital will provide more
consistency across segments to evaluate performance
consistency across segments to evaluate performance
Summary
CNO Financial Group
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Questions and Answers
CNO Financial Group
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Appendix
CNO Financial Group
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Operating return measures
Management believes that an analysis of return before loss on extinguishment or modification of debt, net realized gains or losses, and
increases to our valuation allowance for deferred tax assets (“net operating income,” a non-GAAP financial measure) is important to evaluate the
performance of the Company and is a key measure commonly used in the life insurance industry. Management uses this measure to evaluate
performance because loss on extinguishment or modification of debt, realized investment gains or losses, and increases to our valuation
allowance for deferred tax assets are unrelated to the Company’s continued operations.
increases to our valuation allowance for deferred tax assets (“net operating income,” a non-GAAP financial measure) is important to evaluate the
performance of the Company and is a key measure commonly used in the life insurance industry. Management uses this measure to evaluate
performance because loss on extinguishment or modification of debt, realized investment gains or losses, and increases to our valuation
allowance for deferred tax assets are unrelated to the Company’s continued operations.
This non-GAAP financial measure also differs from return on equity because accumulated other comprehensive income (loss) has been
excluded from the value of equity used to determine this ratio. Management believes this non-GAAP financial measure is useful because it
removes the volatility that arises from changes in accumulated other comprehensive income (loss). Such volatility is often caused by changes in
the estimated fair value of our investment portfolio resulting from changes in general market interest rates rather than the business decisions
made by management.
excluded from the value of equity used to determine this ratio. Management believes this non-GAAP financial measure is useful because it
removes the volatility that arises from changes in accumulated other comprehensive income (loss). Such volatility is often caused by changes in
the estimated fair value of our investment portfolio resulting from changes in general market interest rates rather than the business decisions
made by management.
In addition, our equity includes the value of significant net operating loss carryforwards (included in income tax assets). In accordance with
GAAP, these assets are not discounted, and accordingly will not provide a return to shareholders (until after it is realized as a reduction to taxes
that would otherwise be paid). Management believes that excluding this value from the equity component of this measure enhances the
understanding of the effect these non-discounted assets have on operating returns and the comparability of these measures from period-to-
period. Operating return measures are used in measuring the performance of our business units and are used as a basis for incentive
compensation.
GAAP, these assets are not discounted, and accordingly will not provide a return to shareholders (until after it is realized as a reduction to taxes
that would otherwise be paid). Management believes that excluding this value from the equity component of this measure enhances the
understanding of the effect these non-discounted assets have on operating returns and the comparability of these measures from period-to-
period. Operating return measures are used in measuring the performance of our business units and are used as a basis for incentive
compensation.
All references to operating return on allocated capital measures assume a capital allocation based on a 275% targeted risk-based capital at the
segment level. Additionally, corporate debt has been allocated to the segments.
segment level. Additionally, corporate debt has been allocated to the segments.
Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group
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The calculations of: (i) operating return on allocated capital, excluding accumulated other comprehensive income (loss) and net operating
loss carryforwards (a non-GAAP financial measure); and (ii) return on equity, for the twelve months ended June 30, 2010, are as follows
(dollars in millions):
loss carryforwards (a non-GAAP financial measure); and (ii) return on equity, for the twelve months ended June 30, 2010, are as follows
(dollars in millions):
(Continued on next page)
Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group
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A reconciliation of pretax operating earnings (a non-GAAP financial measure) to segment operating return (loss) and consolidated net income
(loss) for the twelve months ended June 30, 2010, is as follows (dollars in millions):
(loss) for the twelve months ended June 30, 2010, is as follows (dollars in millions):
(Continued on next page)
Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group
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A reconciliation of average allocated capital (for the purpose of determining return on allocated capital), excluding accumulated other
comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure) to average common shareholders’ equity, is
as follows (dollars in millions):
comprehensive income (loss) and net operating loss carryforwards (a non-GAAP financial measure) to average common shareholders’ equity, is
as follows (dollars in millions):
(Continued on next page)
(Continued from previous page)
Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group
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A reconciliation of consolidated capital, excluding accumulated other comprehensive income (loss) and net operating loss carryforwards (a non-
GAAP financial measure) to common shareholders’ equity, is as follows (dollars in millions):
GAAP financial measure) to common shareholders’ equity, is as follows (dollars in millions):
(Continued from previous page)
Information Related to Certain Non-GAAP Financial Measures
CNO Financial Group
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Re-Segmented Financial Supplement - Washington National
CNO Financial Group
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(Continued from previous page)
Re-Segmented Financial Supplement - Washington National
CNO Financial Group
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CNO Financial Group
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(Continued from previous page)
Re-Segmented Financial Supplement - OCB