Inv pres q4 2011 final

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Information about Inv pres q4 2011 final
Investor Relations

Published on March 23, 2012

Author: CNOServices

Source: slideshare.net

4Q11Financial and operating results for the period ended December 31, 2011 February 23, 2012Unless otherwise specified, comparisons in this presentation are between 4Q11 and 4Q10.

Forward-Looking StatementsCautionary Statement Regarding Forward-Looking Statements. Our statements, trend analyses and other information contained in thesematerials relative to markets for CNO Financial’s products and trends in CNO Financial’s operations or financial results, as well as otherstatements, contain forward-looking statements within the meaning of the federal securities laws and the Private Securities Litigation Reform Actof 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,” “comfortablewith,” “optimistic” and similar words, although some forward-looking statements are expressed differently. You should consider statements thatcontain these words carefully because they describe our expectations, plans, strategies and goals and our beliefs concerning future businessconditions, our results of operations, financial position, and our business outlook or they state other ‘‘forward-looking’’ information based oncurrently available information. Assumptions and other important factors that could cause our actual results to differ materially from thoseanticipated in our forward-looking statements include, among other things: (i) changes in or sustained low interest rates causing reductions ininvestment income, the margins of our fixed annuity and life insurance businesses, and sales of, and demand for, our products; (ii) generaleconomic, market and political conditions, including the performance and fluctuations of the financial markets which may affect the value of ourinvestments as well as our ability to raise capital or refinance existing indebtedness and the cost of doing so; (iii) the ultimate outcome oflawsuits filed against us and other legal and regulatory proceedings to which we are subject; (iv) our ability to make anticipated changes tocertain non-guaranteed elements of our life insurance products; (v) our ability to obtain adequate and timely rate increases on our healthproducts, including our long-term care business; (vi) the receipt of any required regulatory approvals for dividend and surplus debenture interestpayments from our insurance subsidiaries; (vii) mortality, morbidity, the increased cost and usage of health care services, persistency, theadequacy of our previous reserve estimates and other factors which may affect the profitability of our insurance products; (viii) changes in ourassumptions related to deferred acquisition costs or the present value of future profits; (ix) the recoverability of our deferred tax assets and theeffect of potential ownership changes and tax rate changes on their value; (x) 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 theInternal Revenue Code of 1986, as amended, and will not trigger an ownership change, will not be successfully challenged by the InternalRevenue Service; (xi) changes in accounting principles and the interpretation thereof (including changes in principles related to accounting fordeferred acquisition costs); (xii) our ability to continue to satisfy the financial ratio and balance requirements and other covenants of our debtagreements; (xiii) our ability to achieve anticipated expense reductions and levels of operational efficiencies including improvements in claimsadjudication and continued automation and rationalization of operating systems, (xiv) performance and valuation of our investments, includingthe impact of realized losses (including other-than-temporary impairment charges); (xv) our ability to identify products and markets in which wecan compete effectively against competitors with greater market share, higher ratings, greater financial resources and stronger brandrecognition; (xvi) our ability to generate sufficient liquidity to meet our debt service obligations and other cash needs; (xvii) our ability to maintaineffective controls over financial reporting; (xviii) our ability to continue to recruit and retain productive agents and distribution partners andcustomer response to new products, distribution channels and marketing initiatives; (xix) our ability to achieve eventual upgrades of the financialstrength ratings of CNO Financial and our insurance company subsidiaries as well as the impact of our ratings on our business, our ability toaccess capital and the cost of capital; (xx) the risk factors or uncertainties listed from time to time in our filings with the Securities and ExchangeCommission; (xxi) regulatory changes or actions, including those relating to regulation of the financial affairs of our insurance companies, suchas the payment of dividends and surplus debenture interest to us, regulation of the sale, underwriting and pricing of products, and health careregulation affecting health insurance products; and (xxii) changes in the Federal income tax laws and regulations which may affect or eliminatethe relative tax advantages of some of our products or affect the value of our deferred tax assets. Other factors and assumptions not identifiedabove are also relevant to the forward-looking statements, and if they prove incorrect, could also cause actual results to differ materially fromthose 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 toany of the forward-looking statements to reflect actual results, future events or developments, changes in assumptions or changes in otherfactors affecting the forward-looking statements.CNO Financial Group 2

Non-GAAP MeasuresThis presentation contains the following financial measures that differ from thecomparable measures under Generally Accepted Accounting Principles (GAAP):operating earnings measures; book value, excluding accumulated other comprehensiveincome (loss) per share; operating return measures; earnings before net realizedinvestment gains (losses) and corporate interest and taxes; and debt to capital ratios,excluding accumulated other comprehensive income (loss). Reconciliations betweenthose non-GAAP measures and the comparable GAAP measures are included in theAppendix, or on the page such measure is presented.While management believes these measures are useful to enhance understanding andcomparability of our financial results, these non-GAAP measures should not beconsidered substitutes for the most directly comparable GAAP measures.Additional information concerning non-GAAP measures is included in our periodic filingswith the Securities and Exchange Commission that are available in the “Investors – SECFilings” section of CNO’s website, www.CNOinc.com.CNO Financial Group 3

CNO Financial Group 4

Summary CNO Our businesses continue to perform well – Solid earnings continued throughout 2011 – Sales in the quarter grew 6% over 4Q2010 Financial strength and credit profile continue to improve – Generating significant amounts of excess capital – Statutory capital and RBC continued to increase in 2011 – Leverage at 17.1% Continue emphasis on profitable organic growth – Sales in all 3 core* segments increased in 2011 – Added 15 Bankers locations in 2011 – Investing in further agent recruiting, footprint expansion and field management development * Actively marketed segmentsCNO Financial Group 5

Operating EPS* (Diluted) CNO 2011 Earnings Growth Drivers: $0.76 2010  Business growth and retention $0.65  NGE and premium rate increases  Favorable claim developments  Proactive capital deployment Weighted average diluted shares (in millions)**: 301.9 304.1 * Operating earnings per share exclude loss on extinguishment of debt, net realized investment gains (losses), fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities and valuation allowance related to deferred tax assets. See Appendix for a reconciliation to the corresponding GAAP measure. ** Includes the dilutive impact from convertible debentures. See the appendix for additional details.CNO Financial Group 6

Operating ROE CNO($ millions) Earnings up 19% over 2010 Operating ROE*, Trailing 4 Quarters Average common shareholders’ equity up 11% over 2010 2011 6.4% 2010 Levers to improve ROE 6.0% – Improving OCB through NGE changes – Layering on new business with 12+% after-tax, unlevered return – Effectively deploying excess capital – Continuing to improve efficiency Average common shareholders’ equity, excluding AOCI and net operating loss carryforwards, trailing 4 quarters: $3,048.5 $3,378.9 *Operating return excludes loss on extinguishment of debt, net realized investment gains (losses), fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities and change in valuation allowance related to deferred tax assets. Equity excludes accumulated other comprehensive income (loss) and the value of net operating loss carryforwards. See Appendix for a reconciliation to the corresponding GAAP measure.CNO Financial Group 7

Growth in the CNO Franchise($ millions) CNO Average liabilities on core business segments are increasing, while OCB is shrinking $16,106.8 $15,481.7 $704.0 $15,066.5 $698.0 $693.6 $2,637.6 $2,676.8 $2,894.9 $12,765.2 $12,106.9 $11,478.0 $5,799.2 $5,511.5 $5,286.1 2009 2010 2011CNO Financial Group 8

Financial Strength ($ millions) CNO Liquidity Debt to Total Capital Consolidated RBC Ratio* Ratio** 2011 2011 358% 2010 2010 $202.8 20.0% 332% 2011 2010 17.1% $161.1 Strong capital generation driving key financial strength measures* Risk-Based Capital (“RBC”) requirements provide a tool for insurance regulators to determine the levels of statutory capital and surplus an insurer must maintain in relation to itsinsurance and investment risks. The RBC ratio is the ratio of the statutory consolidated adjusted capital of our insurance subsidiaries to RBC.** As defined in our Senior Secured Credit Agreement. See appendix for reconciliation to GAAP measure. CNO Financial Group 9

2011: A Year of Accomplishments CNOFinancial strength and credit profile further improvedContinued to generate significant excess capitalMaintained focus on growing the franchise and brandsProgress recognized in ratings upgradesCNO Financial Group 10

2011 Core Business Review Continued to improve performance across all core segments  Branch expansion helped generate increases in sales and agent force  Continued stability in LTC line  Manager Trainee Program currently hiring/recruiting first class of trainees  PMA sales benefited from agent recruiting and a healthy farm economy  WNIC Independent experienced strong growth through increased product availability and wholesaling support  Increased advertising drove growthCNO Financial Group 11

4Q11 Core Segment Results - EBIT ($ millions) $87.2  Bankers Life earnings up 22% $71.4  Washington National earnings up 2%  Colonial Penn earnings up 7% $28.7 $29.2 $5.8 $6.2 4Q2010 4Q2011 4Q2010 4Q2011 4Q2010 4Q2011 Bankers Life Washington National Colonial PennCNO Financial Group 12

4Q11 Sales and Distribution Results Bankers Life ($ millions) Quarterly NAP* Sales results – Up 2% 4Q10 4Q11 $68.6 $69.8 3Q11 • Life sales up 7% 1Q11 2Q11 $60.8 $60.1 • LTC sales up 6% $55.2 Recruiting has been successful – New agent contracts up 25% – Agent force grew 11% in 2011 Sales of partnership products (not reported in NAP) continue to expand Branch expansion successful; added all 15 targeted locations *Med Advantage sales (includes PDP) are excluded from NAP in all periods. CNO Financial Group 13

Long Term Care Bankers Life Proactive management of risk and profitability resulting in continued stability in our LTC business… Bankers business model utilizing exclusive distribution, and a focus on middle income 65+ target market dictates the sale of a lower risk profile set of individually underwritten products – No group business Ongoing product pricing and re-pricing to improve risk/return profile Liability durations, while long, can be, and are matched with investments – Extended asset durations at the beginning of 2010 hedging risk of reinvesting at sustained low interest rate LTC (LTC and HHC) and STC Sales Mix Risk profile of LTC block declining – Less than 5% of in force policies contain lifetime 52% benefit options 67% 64% 59% 71% 81% – Almost 50% of current new sales are short term care (STC) policies with different risk profile than LTC 48% Diversified sales mix with LTC sales, 29% 33% 36% 41% 19% excluding STC, representing 6% of total 2006 2007 2008 2009 2010 2011 NAP for Bankers in 2011 STC (Short Term Care) LTC (Long Term Care and Home Health Care) CNO Financial Group 14

4Q11 Sales and Distribution Results Washington National ($ millions) $18.9  Core product sales (supplemental $17.5 health and life) up 14%  Investment in life sales gaining traction  PMA new producing agents 131, up 7%; and WNIC Independent new producing IMO’s 21, up 91% 4Q10 NAP 4Q11 NAP $1.8 $0.7 Life Supplemental HealthCNO Financial Group 15

Colonial Penn4Q11 Sales and Distribution Results Quarterly NAP 1Q11 Sales growth continues, NAP up $13.6 2Q11 3Q11 4Q11 $12.8 $12.7 29% $12.3 4Q10 $9.5 Robust lead generation activity continues Quarterly results in 2011 were in line with expectations and reflect seasonalityCNO Financial Group 16

2012 OutlookStrong start with Sales Up In All 3 Core Segments and Positioned Well To Serve Our Target Market  Strong agent force metrics entering 2012 put us in a position to further capitalize on the growth in our market  Expect headwinds in fixed annuity sales for 2012 as a result of pulling products and implementing commission reduction to ensure full spreads are achieved  Manager Trainee Program launched and “Top Gun” agent productivity initiative kickoff scheduled for June  Development of additional PMA sales leaders and expansion of the WNIC Independent wholesaling team expected to continue to drive strong results  New products scheduled for 2nd half 2012 launch  Strong lead activity continuing into 2012CNO Financial Group 17

4Q11 and 2011 Consolidated Summary CNO  Operating Income* & ROE: - 4Q operating income of $60 million or 22 cents per diluted share up 16% and 22% respectively - 2011 ROE of 6.4% up 40 basis points with increase in average equity of 11% - Book value per share (excluding AOCI) increased 12% to $18.26 per share  Capital & Liquidity: - Ended the year with a consolidated risk-based capital ratio of 358% - 2011 debt payments of $145 million drove leverage down 290 basis points to 17.1% - Holding company liquidity increased to $203 million - Free cash flow continued to build ending the year with excess capital of $140 million  2011 Capital Deployment: - Purchased 11 million shares for $70 million, representing 4.4% of outstanding shares at 4Q2010*Management believes that an analysis of net income applicable to common stock before: (1) loss on extinguishment of debt, net of income taxes; (2) net realized investment gains orlosses, net of related amortization and income taxes; (3) increases or decreases in the valuation allowance related to deferred tax assets; and (4) fair value changes due to fluctuationsin the interest rates used to discount embedded derivative liabilities related to our fixed index annuities, net of related amortization and income 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 thismeasure to evaluate performance because such items can be affected by events that are unrelated to the company’s underlying fundamentals. The table on page 36 reconciles thenon-GAAP measure to the corresponding GAAP measure.CNO Financial Group 18

Segment Earnings Trends CNO ($ millions) 4Q10 1Q11 2Q11 3Q11 4Q11Bankers Life $ 71.4 $ 63.9 $ 84.7 $ 91.4 $ 87.2Washington National 28.7 25.2 22.7 22.1 29.2Colonial Penn 5.8 5.4 7.6 8.1 6.2Other CNO Business 6.0 7.1 4.8 2.0 (0.5)Corporate operations, excluding interest expense (13.7) (0.5) (11.3) (27.5) (8.4) Total EBIT* 98.2 101.1 108.5 96.1 113.7 4Q2011 Notable Items: Earnings Drivers:  $11 million of favorable reserve  Favorable claims development across most developments in Bankers Life major health lines  $2.6 million net negative impact of  Annuity margins increased in Bankers Life with assumption changes on retirement plan strong retention and pricing actions obligations and stock option expense * Management believes that an analysis of income before: (i) net realized investment gains (losses), net of related amortization; and (ii) 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 (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 these items can be affected by events that are unrelated to a company’s underlying fundamentals. The table on Page 37 reconciles the non-GAAP measure to the corresponding GAAP measure. See Appendix for a reconciliation of the return on equity measure to the corresponding GAAP measure. CNO Financial Group 19

Statutory Earnings Power and CNOCash Generation($ millions) 2010 2011 Observations:  Statutory earnings increased 39% to $363 million $154.1 $346.7  Attractive ratio of statutory to $180.5 GAAP earnings expected to continue $209.2 $209.0 ** $209.0 $81.0 $81.0  Earnings retained in support of capital ratios and business growth $128.2 $128.2 $137.7 $137.7 Statutory Earnings Power Inflows to Holding Co Statutory Earnings Power Inflows to Holding CoFees and Interest to Holding Company Net Dividends to Holding Company* Net Gain From Operations Retained in Insurance Companies * Dividends net of capital contributionsCNO Financial Group 20 ** Amount is net of $26mm contribution to life companies accrued in 2011

Corporate Liquidity TrendRecurring Sources and Uses Including Dividends and CNOScheduled Debt Payments($ in millions) Observations: $346.7  Free cash flow after recurring uses increased by $100 million $209.0 * $209.2  Steady improvement on interest $81.0 coverage reaching 5x in 2011 $139.1 $145.5 $25.0 $55.0  Discretionary capital deployment of $137.7 $128.2 $114.1 $90.5 $160 million during 2011 2010 2011 Recurring Sources Recurring Uses** Net Dividends Scheduled Debt Payments Made*** * Amount is net of $26mm contribution to life companies accrued in 2011 CNO Financial Group ** Includes corporate expenses and interest payments 21 *** Excludes impact of capital transactions

Excess Capital($ millions) CNO Approximately $140 million total excess capital as of 12/31/11 Consolidated RBC Ratio Liquidity 4Q10 1Q11 2Q11 3Q11 4Q11 332% 341% 351% 359% 358% 2Q11 350%* $234.0 4Q11 $202.8Management Target = 300% 1Q11 3Q11 4Q10 $169.0 $168.9 $161.1 Management Target = $100 Approximately $37 million in excess $102.8 million in excess of of management target management targetCNO Financial Group * During 3Q11, management increased the RBC target from 300% to 350% 22

Actively Managing Interest Rate Risk CNO Factored into Loss Recognition Testing – Assumed continuation of current interest rates through the end of the next calendar year – Resulted in 3Q charges of approximately $13 million (pre-tax) in both 2010 and 2011 Statutory Reserves and Capital – Sustained low interest-rate environment considered in determining reserve adequacy – Completed testing has verified adequacy of Statutory reserve levels – No material reserve impact Management Tools for Mitigating Impact of Low-Interest Rate Environment – Active portfolio management – Adjust agent compensation – Remove some products from the market (e.g. certain annuity products) – Adjust crediting rates and product charges on interest-sensitive life and annuities – Increase new business premiums to offset reduced long term investment yields on traditional insurance (whole life, long term care, specified disease, accident) – Reinsure certain blocksCNO Financial Group 23

2012 Outlook CNO DAC Impact (Adoption of ASU 2010-26) : - Revised estimated 2011 Pro Forma impacts based on sales momentum - EPS impact of approximately 15 cents per diluted share - Approximate book value impact of $580 million or $1.96 per diluted share - Exploring alignment of certain commission and compensation arrangements - Will bifurcate between in-force and new business in future periods Core Earnings Drivers: - Expect traditional Q1 seasonality in benefit ratios - Q1 charge of $6 million (pre-tax) related to Chicago relocation – In excess of $1 million in annual savings over the next 11 years - Expect EBIT and Operating Earnings growth despite low rate environment Capital Deployment: - Expect continued build in excess capital* with deployment, balancing share repurchase with de-leveraging and investment in business growth * Excess capital defined as holding company liquidity above $100 million and RBC in excess of 350%CNO Financial Group 24

Net Investment Income($ millions) CNO General Account Investment Income 2Q11 3Q11 4Q11  Relatively stable new money and 4Q10 1Q11 $336.1 $342.2 $338.2 $344.2 $332.2 earned yield progression despite low interest rate environment  Year over year increase in investment income primarily due to growth in assets (including expanded FHLB floating rate program) New Money Rate: 5.96% 5.60% 5.24% 5.55% 5.29% Earned Yield: 5.77% 5.79% 5.87% 5.67% 5.70% Earned Yield (excluding floating rate FHLB): 5.84% 5.90% 5.97% 5.79% 5.83%CNO Financial Group 25

Realized Gains/Losses Recognizedthrough Net Income CNO ($ millions) 4Q10 1Q11 2Q11 3Q11 4Q11Gross Gains $138.8 $43.5 $29.7 $74.5 $41.9Gross Losses (13.5) (25.1) (16.7) (41.0) (10.4)Losses due to recognition of other-than-temporary impairments recognized in earnings (77.1) (13.3) (10.1) (2.9) (8.3)Amortization adjustments to insurance intangibles (11.0) (0.6) 0.7 (4.9) (2.4) Net investment gains (losses) before tax 37.2 4.5 3.6 25.7 20.8Income tax benefit (expense) (13.1) (1.6) (1.2) (9.1) (7.2)Net investment gains after tax $24.1 $2.9 $2.4 $16.6 $13.6CNO Financial Group 26

Impairments ($ millions) CNO Impairments remain low reflecting stable portfolio quality $14 $13.3 $12 $10.1 $10 $8.3 $8 $6 $4 $2.9 $2 $0 1Q11 2Q11 3Q11 4Q11 IGA Corporates Alt-A / Prime Jumbo ABS RMBS/ CMBS Subprime Municipals CDO Commercial Mortgage Loans OtherCNO Financial Group 27

Unrealized Gain/Loss* CNO ($ millions) Unrealized Gain % of Invested Assets $2,000 8% $1,800 Unrealized Gain 7% % of Invested Assets $1,600 6% $1,400 5% $1,200 $1,000 4% $800 3% $600 2% $400 1% $200 $0 0% 4Q 2010 1Q 2011 2Q 2011 3Q 2011 Q4 2011 *Includes debt and equity securities classified as available for sale. Excludes investments from variable interest entities which we consolidate under GAAP.CNO Financial Group 28

Holding Company Investments at 12/31/11($ millions) CNO Current Investments Long Term Target Allocation Cash & Cash and Money Market $87.9 * Money Market Fixed Income (net) 68.9 $25 Fixed Income Equities 17.8 (net) Alternatives 28.2 $75 TOTAL $202.8 Alternatives & Equities (Balance)* Amount is net of $26mm contribution to life companies accrued in 2011CNO Financial Group 29

Asset Allocation and Quality at 12/31/11* CNO ($ millions) Book Value by Allocation Investment Quality: Fixed Maturities Govts/Agency 1.4% Cash & <BBB Other AAA ABS 6.0% 9% 11% 5.7% AA Municipals 10% 7.3% CMBS 5.5% IG Corporates 54.7% HY Corporates BBB 4.3% 47% A Mortgage Loans 23% 6.5% CMOs 8.6% Relatively limited change in 4Q Relatively stable at 91% IG*Excludes investments from variable interest entities which we consolidate under GAAP (the related liabilities are non-recourse to CNO).CNO Financial Group 30

2011 Summary and Outlook CNO Market Observations What we are doing… Many market participants appear to be increasing HG  Remain somewhat cautious on credit after the corporate allocations without offsetting increase in recent rally supply  Realize spreads could tighten Most structured credit markets face emerging supply/demand imbalance due to limited new issue  Remain a buyer of credit, including corporates, volume and ongoing pay down proceeds select non-agency RMBS, ABS, and high yield Decline in tail risk (but not eliminated) driven by  Taking no curve position at this point (ALM improvements in U.S. economic environment and match neutral) various European initiatives  Seeing attractive opportunities to increase our Reduction in volatility extending beyond equities into allocation to A quality commercial mortgages fixed income  Actively de-risking our mortgage portfolio by Fed’s extended low rate policy pruning exposures to less stabilized, more leveraged properties; we have reduced our loan Impacts new money rates, with marginal effect on portfolio by 18% over the past 2 years portfolio book yield Credit migration/dilution expected to be moderate; 2012 likely to show limited credit dilution CNO Financial Group 31

CNO Value Proposition  Above average growth potential; expected sales growth of 8-12% annually – Percentage of the population 65 years old and older projected to increase by 50% in Growth twenty years Well – On average, over 10,000 Americans will turn 65 each day through 2030Positioned in  Broad product suite tailored to CNO’s target market Market Competitive  Exclusive, growing distribution  Target market focus, with growth as Baby Boomers turn 65 Advantage  Sustainable with barriers to entry  4Q2011 marks the twelfth consecutive quarter of GAAP net income Profitability  2011 GAAP net operating earnings of $216.0 million, up 19% over 2010  Growth in actively marketed segments Value Drivers  2011 Statutory net operating earnings of $363.1 million, up 39% over 2010 Capital  Excess capital generation of $75-$200 million annually Generation  Diversified product suite focused on protection needs Risk Products  Actively managed inforce blockManagement  Focus on products with attractive returns and less impacted by capital markets volatility Well  $202.8 million in capital at the Holding Company, compared to $59.0 million at 12/31/2008Capitalized Credit Profile  RBC of 358% versus 255% at 12/31/2008  Debt to capital at 17.1%, down from 28.2% at 12/31/2008 CNO Financial Group 32

CNO: Well Positioned in Growing & Underserved Markets The middle-income, pre-retiree, and retirement markets are growing as the Boomers age These markets need simple, straightforward products that help address payment of healthcare expenditures, adequacy of retirement, and leaving a legacy for loved ones We are well positioned in all 3 segments to serve these needs CNO Financial Group 33

Questions and AnswersCNO Financial Group 34

AppendixCNO Financial Group 35

Pre/After Tax GAAP Operating Income CNO ($ millions) $350.0 $343.1 $300.0 $281.6 $127.1 $252.3 $250.0 $99.7 $200.0 $87.7 $150.0 $100.0 $216.0 $181.9 $164.6 $50.0 $0.0 2009 2010 2011 Net Operating Income Tax Expense on Operating Income CNO Financial Group 36

Quarterly Earnings CNO ($ millions) 4Q10 1Q11 2Q11 3Q11 4Q11Bankers Life $ 71.4 $ 63.9 $ 84.7 $ 91.4 $ 87.2Washington National 28.7 25.2 22.7 22.1 29.2Colonial Penn 5.8 5.4 7.6 8.1 6.2Other CNO Business 6.0 7.1 4.8 2.0 (0.5)Corporate operations, excluding interest expense (13.7) (0.5) (11.3) (27.5) (8.4) Total EBIT* 98.2 101.1 108.5 96.1 113.7Corporate interest expense (20.0) (20.6) (19.3) (18.7) (17.7) Income before net realized investment gains (losses), fair value changes in embedded derivative liabilities and taxes 78.2 80.5 89.2 77.4 96.0Tax expense on period income 26.5 28.6 31.7 30.9 35.9 Net operating income 51.7 51.9 57.5 46.5 60.1Net realized investment gains (losses) 24.1 2.9 2.4 16.6 13.6Fair value changes in embedded derivative liabilities - - - (9.4) (0.4)Loss on extinguishment of debt, net of income taxes (2.6) (0.9) (0.4) (0.7) (0.2) Net income before valuation allowance for deferred tax assets 73.2 53.9 59.5 53.0 73.1Decrease in valuation allowance for deferred tax assets 95.0 - - 143.0 - Net income $ 168.2 $ 53.9 $ 59.5 $ 196.0 $ 73.1 *Management believes that an analysis of earnings before net realized investment gains (losses), corporate interest, loss on extinguishment of debt, fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities and taxes (“EBIT,” a non-GAAP financial measure) provides a clearer comparison of the operating results of the company quarter-over-quarter because it excludes: (1) corporate interest expense; (2) loss on extinguishment of debt; (3) net realized investment gains (losses); and (4) fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities that are unrelated to the company’s underlying fundamentals. The table above provides a reconciliation of EBIT to net income. CNO Financial Group 37

Quarterly Earnings Bankers Life($ millions) 4Q10 1Q11 2Q11 3Q11 4Q11 Insurance policy income $394.2 $400.0 $409.6 $404.6 $398.2 Net investment income: General account assets 187.7 191.3 196.5 194.3 198.2 Other portfolios 16.3 18.3 0.4 (36.3) 3.6 Fee revenue and other income 4.2 2.3 3.3 3.6 4.6 Total revenues 602.4 611.9 609.8 566.2 604.6 Insurance policy benefits 339.9 337.6 351.3 333.6 339.2 Amounts added to policyholder account balances 66.1 67.2 57.6 27.0 56.6 Amortization related to operations 76.5 101.9 69.7 67.2 69.8 Interest expense on investment borrowings 1.0 1.2 1.1 1.2 1.3 Other operating costs and expenses 47.5 40.1 45.4 45.8 50.5 Total benefits and expenses 531.0 548.0 525.1 474.8 517.4 Income before net realized investment gains (losses), net of related amortization and income taxes $71.4 $63.9 $84.7 $91.4 $87.2 Trailing 4 Quarter Operating Return on Allocated Capital: 11.8% 12.1% 12.7% 12.0% 12.2% Management believes that an analysis of income before: (i) net realized investment gains (losses), net of related amortization; and (ii) 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 (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 these items can be affected by events that are unrelated to a company’s underlying fundamentals. The table on Page 37 reconciles the non-GAAP measure to the corresponding GAAP measure. See Appendix for a reconciliation of the return on equity measure to the corresponding GAAP measure.CNO Financial Group 38

Quarterly Earnings ($ millions) Washington National 4Q10 1Q11 2Q11 3Q11 4Q11Insurance policy income $146.0 $145.4 $146.6 $145.9 $147.2Net investment income: General account assets 46.7 46.3 46.7 47.3 49.1 Other portfolios 1.0 - - - 0.1Fee revenue and other income 0.3 0.3 0.2 0.4 0.1 Total revenues 194.0 192.0 193.5 193.6 196.5Insurance policy benefits 109.0 112.2 118.3 119.0 115.0Amortization related to operations 14.6 16.1 14.0 13.9 12.5Interest expense on investment borrowings - - - 0.2 0.5Other operating costs and expenses 41.7 38.5 38.5 38.4 39.3 Total benefits and expenses 165.3 166.8 170.8 171.5 167.3 Income before net realized investment gains (losses), net of related amortization and income taxes $28.7 $25.2 $22.7 $22.1 $29.2Trailing 4 Quarter Operating Return on Allocated Capital: 9.9% 9.3% 9.2% 8.5% 8.4% Management believes that an analysis of income before: (i) net realized investment gains (losses), net of related amortization; and (ii) 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 (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 these items can be affected by events that are unrelated to a company’s underlying fundamentals. The table on Page 37 reconciles the non-GAAP measure to the corresponding GAAP measure. See Appendix for a reconciliation of the return on equity measure to the corresponding GAAP measure. CNO Financial Group 39

Quarterly Earnings ($ millions) Colonial Penn 4Q10 1Q11 2Q11 3Q11 4Q11Insurance policy income $48.6 $50.3 $50.9 $50.8 $51.0Net investment income 10.0 10.3 10.5 10.1 10.2Fee revenue and other income 0.2 0.2 0.2 0.2 0.3 Total revenues 58.8 60.8 61.6 61.1 61.5Insurance policy benefits 36.1 38.5 37.8 35.7 37.2Amounts added to policyholder account balances 0.2 0.2 0.2 0.3 0.2Amortization related to operations 8.8 9.0 8.6 9.3 10.1Other operating costs and expenses 7.9 7.7 7.4 7.7 7.8 Total benefits and expenses

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