Good morning. My name is Rochelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the CNO Solutions conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you, Mr. Helding. You may begin your conference.
Good morning. Thank you for joining us to discuss this morning's announcement regarding the sale of CNO's Closed Block Life & Annuity subsidiary to Wilton Re. Today's presentation will include remarks from Ed Bonach, Chief Executive Officer, and Fred Crawford, Chief Financial Officer. Following the presentation, there will be a brief question-and-answer period. During this conference call, we will be referring to information contained in this morning's press release. You can obtain the release by visiting the media section of our website at www.cnoinc.com. This presentation is also available in the investors section of our website and was filed in a Form 8-K earlier today. Let me remind you that any forward-looking statements we make today are subject to a number of factors which may cause actual results to be materially different than those contemplated by the forward-looking statements.
Today's presentation contains a number of non-GAAP measures, which should not be considered as substitutes for the most directly comparable GAAP measures. You'll find a reconciliation of the non-GAAP measures to the corresponding GAAP measures in the appendix. This morning, CNO announced that it has entered into a definitive agreement to sell the majority of its OCB closed blocks of business to Wilton Re. This agreement will benefit CNO in a number of different ways that Ed and Fred will discuss later in the presentation. Let me first cover some of the basics. First, CNO will sell 100% of the common stock of Conseco Life Insurance Company, or CLIC, consisting of approximately $3.4 billion of interest-sensitive life, traditional life, and annuity reserves to Wilton Re.
Based on year-end 2013 capital and surplus, CNO will receive approximately $237 million in proceeds as a result of this transaction. Second, CNO will pay $28 million to recapture approximately $160 million of traditional life reserves that had been previously ceded to Wilton Re in 2009. Next, 40|86 Advisors, our wholly-owned investment subsidiary, will enter into an investment advisory agreement to manage a portion of Wilton Re's general account assets after closing. The sale of CLIC is subject to Indiana Department of Insurance approval and is expected to close by mid-year 2014. Lastly, this morning, CNO's board of directors approved a 100% increase in the quarterly common stock dividend to $0.06 per share. The dividend will be payable on March 24, 2014, to shareholders of record as of March 14, 2014.
With that, I'll turn the call over to Ed.
Thanks, Erik, good morning, everyone. I'm pleased to be here with you today to discuss another significant milestone for CNO. In a moment, Fred will walk you through the transaction details, first, let me talk briefly about the strategic importance of this transaction. As you know, we have taken several risk-based actions over the past several years to maximize the stability and economic health of our OCB closed blocks of business. These actions resulted in real economic value creation for CNO stakeholders. With the sale of this legal entity, we will unlock a significant amount of capital that was otherwise unavailable for investment or redeployment. These blocks of business have been a recurring source of earnings volatility and presented significant risk to CNO's balance sheet. The interest-sensitive life blocks of business have razor-thin margins and are especially susceptible to low for long interest rates.
In fact, CNO has taken significant charges in the past on these blocks related to low interest rates. The outright sale of this legal entity, excuse me, is also important because it removes a thinly capitalized subsidiary that carried separate and lower financial strength and ratings, perhaps most importantly, allows for a clean break from the legacy issues of the past. This transaction will allow us to focus even more on our core business segments and greatly reduce CNO's back office complexity, improving operating efficiencies, enhance the customer experience. Lastly, in Wilton Re, we will be leveraging an existing relationship with a proven partner in the insurance industry and have confidence in their ability to manage these blocks of business going forward. Wilton's successful track record in executing and managing transactions of this nature should ensure a smooth closing and transition.
The ability to recapture a profitable block of traditional life business and the opportunity for 40|86 to enter into an investment management agreement made partnering with Wilton especially attractive, allowing us to deploy some of our excess capital back into a core business and to generate additional non-life income. As you may recall, back in 2010, we formed the OCB segment to dedicate focus and attention to our closed blocks of business, some of which were materially underperforming and volatile. The OCB segment was comprised of approximately $5 billion of reserves, slide six provides an overview of the blocks of business that were the subject of this transaction, as well as the recently announced long-term care reinsurance transaction.
As mentioned during our Q4 earnings call, CNO ceded approximately $550 million of closed block long-term care reserves to Beechwood Re. As part of the sale of CLIC, CNO will transfer approximately $3.4 billion of traditional life, interest-sensitive life, and annuity reserves to Wilton. CNO will retain just under $1 billion of reserves composed primarily of interest-sensitive life and annuity business. These blocks of business, although a part of the OCB segment, were largely issued by the Washington National Insurance Company and are profitable. Upon the closing of the transaction, CNO will no longer report on OCB as a segment, and these remaining blocks will be consolidated into our other reporting segment. Let me now turn it over to Fred to discuss this transaction in more detail. Fred.
Thank you, Ed, and good morning, everyone. Turning to slide seven, let me walk you through the mechanics of the transaction announced this morning. It's first important to note that there are certain intercompany transactions that take place prior to the sale, designed to move accident and health blocks out of CLIC. This results in injecting approximately $36 million of capital into CLIC, thus increasing the ultimate purchase price and proceeds dollar for dollar. We then sell CLIC to Wilton with a purchase price based on the value of in-force and a roll forward of the capital to closing. We enter into a transition services agreement where Wilton pays us to effectively act as a TPA until fully converting the business onto their platforms. Back in 2009, Bankers reinsured 50% of an attractive block of traditional life insurance to Wilton in order to raise capital during the financial crisis.
In concert with the sale of CLIC, we are recapturing approximately $160 million of traditional life reserves for a payment of $28 million. It's important to note that Bankers retained administration of this block, thus, the business will easily fold back into the Bankers reporting segment with no added expense. Wilton currently uses outside asset managers on their general account investments, and we are thrilled that 40|86 will be added to the mix. We expect this arrangement to start out small and hopefully build in time as we perform. Let's then turn to slide eight to touch on the expected pro forma financial impact. For pro forma purposes, we assume a sales price based on the year-end 2013 capital and surplus of CLIC. The final purchase price will be adjusted for the performance of CLIC between December 31st, 2013, and closing.
The $237 million purchase price represents a multiple of statutory capital in the range of 1.5 times. The in-force is valued at roughly $85 million in this transaction. Realized at year-end, CLIC's RBC was around 250%. The anticipated net proceeds after deal costs will come into the holding company, releasing capital tied up in support of our runoff subsidiary. As a below investment-grade company, we are subject to a mandatory debt prepayment provision with a portion of the proceeds. We estimate the prepayment to be approximately $106 million based on the $237 million purchase price. Some of the payment counts towards our scheduled amortization in the next year. The net debt reduction is roughly $69 million. At the time of closing, holding company liquidity will improve by roughly $125 million.
We would size our deployable capital to be in the $285 million range when considering our holding company liquidity position at year-end. Consistent with a number of recent closed block transactions in the marketplace, we will record a GAAP loss on sale. Based on our December 31st year-end, we estimate the pro forma impact of these transactions to be a loss of approximately $303 million after tax. In addition, we estimate the overall book value reduction, including unrealized gains and losses, will approximate $447 million after tax. The book value decline is more than offset by the accelerated amortization in terms of our GAAP leverage. We continue to run at a relatively low leverage ratio in the 16% range. We have calculated the pro forma EPS impact to be an annual reduction of $0.04 a share.
The calculation looks back to 2013 results and incorporates normalized earnings for the blocks being sold, the overhead currently assigned to this portion of OCB segment, earnings from the recapture, and reinvestment of the proceeds. In terms of ROE, we take an important step as a result of these transactions. We give you the pro forma component parts with the anticipated book value and operating earnings impact when applied to 2013 results. The math results in an increase in the 60-70 basis point range, recognizing this is on top of our year-end long-term care reinsurance transaction, which added nearly 30 basis points to run rate ROE. More important, the quality of our ROE has improved, and we believe this drives a higher multiple.
Not included in this view of ROE is the fact that we have also kept leverage low, are seeing continued ratings momentum, and are positioned to entertain a recapitalization when the timing is optimal. In addition, we have not assumed an optimal use of deployable capital, instead assuming a high quality and liquid reinvestment rate. In the coming months, we will focus on closing these transactions, working actively with the rating agencies, watching carefully the capital markets, being opportunistic in deploying our capital, and setting a new and elevated course for our long-term ROE target. While not on this slide, we expect Bankers traditional life recapture and $28 million payment will put to work about five points of RBC and will generate about $8 million of EBIT for the Bankers segment. Slide nine illustrates how we think about the reduction in potential capital volatility and lowering our beta.
Leveraging off our cash flow testing results, we maintain an aggregate margin under the level scenario of approximately $3 billion on enterprise reserves of $23 billion. As you may recall from our fourth quarter disclosures, the blocks of business involved in this transaction run at thin cash flow testing margins of approximately 1%. The $2.2 billion of interest-sensitive life reserves and the $550 million of runoff long-term care reserves are very sensitive to falling rates. Here we show that running the down scenario rate, we experience a $250 million negative impact to our margin. The impact reduced to $210 million with the sale of CLIC. While this may not seem like a large improvement, because the margins in these businesses are thin, there is risk of an immediate hit to capital in GAAP earnings. We also show the asset leverage of CLIC.
This is a metric paid attention to by the rating agencies. CLIC operates with very high asset leverage, and we need to invest in conventional assets to support the liability cash flows. My point is simple. It is always painful to take impairments, but it is particularly painful when you take impairments on assets backing non-strategic blocks of low return business. Turning to slide 10, we understand a valid question you may have for us is what do you plan to do with the deployable capital once we close on this transaction? We show here our outlook for key capital metrics, assuming a mid-year closing. As I mentioned earlier, we see little impact to leverage and arguably have debt capacity. RBC is expected to settle in around the 400% range during the year and after our Bankers recapture.
We will be adding approximately $125 million to our holding company liquidity already north of $300 million at year-end. You can see from our 2013 results, we have a track record of deploying capital proactively for our shareholders while driving towards investment grade. You can expect us to be diligent in putting the capital to work in a sensible way for our shareholders. We take a meaningful step in redeployment through the traditional life recapture that utilizes excess capital in Bankers Life. The doubling of our common stock dividend is significant in delivering a consistent level of capital back to our shareholders. The mandatory prepayment of debt is a temporary use of capital, recognizing we have ample debt capacity. Absent other compelling alternatives, we expect to move towards the high end of our guidance on repurchase of $225 million-$300 million for 2014.
As we move towards closing and fully assess our pro forma capital structure and the optimal approach to deploying our excess capital, we will guide accordingly. Until that time, we remain balanced and opportunistic in our approach. With that, let me turn back to Ed for closing comments.
Thanks, Fred. The sale of CLIC represents another significant milestone for CNO. We have been operating with investment-grade financial ratios, producing solid earnings and excess capital and have a significant amount of deployable capital at the holding company. This transaction, together with the recent closed block LTC reinsurance transaction, should greatly improve the stability and quality of our earnings and ROE, along with further enhancing the reliability of future cash flow. The rating agencies continue to view our actions and progress with positive rating movement. These transactions allow us to focus on our core business segments and serve the needs of our target customers.
This transaction is also significant in that it will enhance our ability to reduce complexity in our back-office processes, allow us to continue to drive efficiencies in our operations, and redeploy resources to seize upon the significant market opportunity with baby boomers aging into our target middle-income market. We do not believe that this is the last stair step for CNO. Upon completion of the sale, management will be even more focused on growing our core franchises. We have been making and will continue to make significant investments in expanding our distribution, agent productivity, and new product development and believe this will result in sales growth rates that are above industry averages. Lastly, I'm pleased to report that with today's dividend announcement, we were able to achieve our stated goal of increasing our dividend payout ratio to 20%, one year ahead of schedule.
Now we'll open it up for your questions. Operator? Operator?
At this time, if you would like to ask a question, please press star, then the number one on your telephone keypad. Again, press star, then the number one to ask a question. We'll pause for just a moment to compile the Q&A roster. Your first question from the line of Randy Binner.
Hey, good morning. Thank you. I guess I just want to clarify the impact of book value here. You gave the $447 million number, so that's roughly $2.50 per share, and I guess there's no when you did the long-term care deal with Beechwood Re on the fourth quarter, there was favorable tax items that kind of kept book value ex AOCI stable. Should we expect to kind of lose that full roughly $2.50 per share, per book value, given too that you gave the negative $0.04 disclosure on EPS? Just trying to understand where we land on GAAP book value ex OCI.
Yeah. Randy, just a couple things. First, remember the $447 includes the impact from AOCI. When thinking of things like key ratios, like our leverage and our ROE, you really want to focus in on the $303 million that we disclosed. Also realize that this impact is based on 12/31. There will be a modest roll forward of capital build in the subsidiary as we move towards closing 6/30. We don't have any way of predicting exactly what that capital build will be, but it's important to note that the purchase price gets adjusted ultimately for what the balance sheet looks like at closing of CLIC. It will build a little bit gradually throughout the year. After that, the earnings impact is just as we've disclosed. Remember, it's pro forma in that we are looking back at 2013.
You also have to keep in mind what we have sold is a declining source of earnings over time because the book is naturally in runoff. It's also, of course, been a volatile source of earnings over time. You would expect that you would likely sell it at a discount to some of the book value GAAP carrying amounts in this transaction. If you look at the last several transactions in the marketplace that fall into this category, you will see that it's quite common that there's a GAAP book value hit upon disposal of these businesses. It has largely to do with the GAAP carrying value of assets and liabilities versus the statutory carrying value of assets and liabilities.
Can you disclose what you think? You mentioned you think the deal was done at 1.5x stat cap. Can you disclose roughly what we would think of as the multiple on GAAP book value?
It is a discount to GAAP book value, thus the hit. The multiple to statutory. What you will notice also, if you kind of review some of the transactions done in the marketplace, it's quite common to express the transaction as a multiple to statutory capital carrying value. I think this is because the primary focus is on what deployable capital has been generated for redeployment in the growth businesses. As I've said, it's implied in what I commented earlier that the value of the in-force was roughly $85 million. That by default means the capital and surplus levels as defined in the stock purchase agreement were traveling a little north of $150 million at year-end. That capital and surplus that I mentioned will roll forward and build to ultimately become the final purchase price. That's the way to think about it.
The multiple of GAAP book value, of course, is a discount to GAAP book value because of the hit.
Yeah. Just thinking about the stock, our price to book is higher now, and we get the benefits that it's credit positive and it de-risks the company. ROE is better, and I think you mentioned in your prepared remarks that ROE would be better, but is there something you can kind of quantify there? I think the last disclosure is a normalized ROE of 9% in 2015, right? Can we call this a 10% now because of this?
Yeah. What we said today on the call was if you reflect on 2013 and just make the adjustments, just the pure math of this transaction, if you would assume, for example, that we closed at 1/1/2013 and ran the book value impact through average equity for the year and ran the EPS impact that we disclosed, you would come up with a 60 to 70 basis point improvement in ROE. What you have to recall is that we experienced just shy of a 30 basis point improvement in ROE from the long-term care deal that we booked at year-end. Put together the pro forma impact, if you will, looking back on 2013 of these two OCB solutions is in the 90 basis points to approaching 1 percentage point.
Going forward has a number of different factors in it, Randy, which is why we haven't sort of reset a long-term target at this point. Obviously what plays into that very importantly is what your intentions are with the excess capital that has been created by the transaction. Right now, for pro forma purposes, we assumed a relatively modest yield on redeployment. One, we have to put some money down on debt. That saves a little bit of interest expense. We invested the remainder at high quality and liquid, thus low rates. What hangs in the balance here is our comments about being opportunistic and being careful and properly putting to work the deployable capital over time. That's what's going to play into ROE trajectory. Of course, the other thing to keep in mind is we've once again de-levered in this transaction.
From point zero, you're actually bringing your leverage down when you incorporate the book value hit together with the drop-down at day one in the debt. We now are running once again at a very low leverage and arguably have debt capacity. We've seen positive reaction from the rating agencies, as you may have seen come up on your Bloomberg, S&P in particular, with intentions to upgrade upon closing. We are now starting to become in a position to consider going back into the market over time and achieving a lower cost of capital.
All right. Understood. Thank you.
Your next question comes online from Avery.
Hi. Thank you. Just first, strategically, how are you thinking about the annuity blocks that had been housed in OCB? I know you commented the intention is to put them back into the operating businesses. Should we view that as a statement that these are now core, or is it something where you could still consider a transaction for those assets as well?
Yeah. Erik, this is Ed. I would say that, number one, they are stable, profitable books of business. In and of themselves, retaining them is in no way a significant issue or drag to the company, and it also, of course, gives us expense coverage with retaining those blocks. They are not actively sold through Washington National, so from that standpoint, I wouldn't call them core. As far as any transaction in the marketplace, we are always open to good economic trades, we don't have the same dynamics here of needing to accelerate the runoff of this annuity business because the characteristics are quite different in the fact of higher profitability and more stability than the businesses that we have or will, through this transaction, exit.
Got it. That's helpful. Then just if you could talk a little bit about what you're thinking for holding company liquidity. I realize you don't want to talk yet about how you're going to deploy the capital. In terms of thinking about how much capital you would intend to keep at the holding company going forward, I think you had sort of guided to the $300 million range pre-transaction. Would it be fair to think that given the reduction in risk, you may be able to bring down that buffer from what you had been targeting previously?
Yeah. Erik, right now, we guided to hanging in and around the $300 million. This is prior to this transaction. As I mentioned, this now kicks up at closing, holding company liquidity by $125 million. You might also note that some of the debt reduction goes towards debt amortization in the first year. The net debt reduction is more like $69 million. Think of it this way. Over the course of the rest of 2014 and into 2015, our actual debt amortization will come down from the reduction in the debt payment at time zero. We'll be building a good amount of liquidity at the holding company.
Our policy remains the same, which is we think from a ratings and risk management perspective, maintaining $150 million at the holding company of liquidity and investments is perfectly appropriate for a company like ours, given our potential calls on our cash in emergency money. We've always defined the deployable capital as anything above that dollar amount. I mentioned in my comments that we would settle in to deployable capital of around $285 million. That's incorporating, that's basically solving for $150 as our policy at the holding company. The reason we guided to hanging in around $300 million is right now, that's sort of what we see happening, unless we see opportunistic options for our excess capital for our shareholders.
Got you. Guiding the $434 million, that's net of assuming buybacks at the high end of your range. Is that correct?
Yeah, no. When we guided to the high end of the range, that's effectively implied in that is using some level of additional capital to go to the high end. It's not a particularly material number. We guided $225 million-$300 million. That's a range. Now we're simply saying we go to the high side. It would be proactively deploying a bit of incremental money.
Okay. Thank you very much.
Your next question comes from the line of Chris Giovanni.
Thanks so much. Sorry if you repeated this. I jumped on a little bit late. Can you talk about the bidding process for these properties in terms of, there was Wilton Re who ultimately got it. Was it kind of an exclusive because of the reinsurance they provided you during the financial crisis, or can you give some context in terms of how many other people were looking at it?
No. There were multiple parties interested, particularly as you can imagine these days, meaning there are a number of players that are very interested in closed block transactions generically. As we've said before, Chris, it really varies among the players. Some are interested in more annuity-based blocks, some interested in life, some in both. In this particular case, it ended up being a fairly narrow field of folks that we'd be interested in because they had to have an ability to understand the unique nature of these blocks of business, both traditional life, interest-sensitive life, and annuities. You can imagine for something this large for us, it was incredibly important that we focus in on recognized reinsurers with a bona fide level of financial strength and capability. We don't want any disruption with the rating agencies.
We don't want any disruption with regulatory approval on something this dynamic for the go forward of CNO. It wasn't a long list for sure. Ultimately, which is typical of a process, once landing on a good partner, you do move into a period of exclusivity and try to get it across the finish line. In this particular case, of course, Wilton was a particularly strong partner for us. We've had a long-standing relationship with them. It also offered the opportunity to create some positive deployment of capital and really leverage the long-standing relationship for something over and above the pure transaction economics. That clearly favored spending quality time with Wilton to try to drive this home.
Okay. Did this transaction, I guess this is a combination of the LTC, has that kept you out of the market from a share repurchase story into the first quarter? How should we be thinking about that?
Technically it did, in the sense that you have obviously the normal earnings blackouts, but also we had to be very careful, as you can imagine, and there's very specific rules of engagement. We had to be very careful about to what degree any of these transactions had progressed to a point of materiality. It does play a role in it. I wouldn't say it was dramatically an issue, but it certainly did play a role.
Thank you.
Your next question is on the line of Mark Finkelstein.
Sorry, also, if you've addressed this already. Fred, what are the tax consequences of this transaction when you think about that $303 million GAAP loss? How do taxes play into that?
Yeah, the tax situation is interesting in that this property has a relatively low tax basis. The tax basis on the property is in the neighborhood of $150 million, such that on a tax basis, we are selling at a gain. However, we don't end up with any cash tax payment because the subsidiary was structured as being owned by a non-life entity. It has the effect of creating non-life income, and as you know from following us, we have substantial non-life assets of which this transaction was able to utilize those assets. Similarly, there was very little in the way of any GAAP tax dynamic associated with it for the same reason, the non-life nature of it.
The DTA or the valuation thing, it's basically relatively modest, any impact?
That's right.
Okay. The retained blocks, what is the stat capital roughly that backs those blocks?
Yeah. I don't have a great bead on the stat capital that backs those blocks. I would say by definition, it would be relatively modest. A couple things I'd say. One is the majority of it is, of course, annuity business, just shy of $800 million worth of account value. It's housed in Washington National Insurance Company, it's the broader capital base of our larger Washington National Insurance subsidiary that backs the capital in it. It's a bit of a complicated question to answer, Mark, because it's sort of entwined in the various covariance benefits and other things that happen. There's nice benefits. As you can imagine, most of what's in Washington National is supplemental health business, which makes annuity business in that legal entity nice from a covariance of risk and so forth.
I would say it's not a big difference maker in terms of the amount of capital backing that business. It is profitable business. Is the business we're keeping, the small amount of sub-health and life business that we're pulling back in out of CLIC before sale. It's good business. It's going to be housed in Washington National. It's profitable on a stat and GAAP basis. As Ed mentioned, it's natural for us to continue to run off and monitor.
Did the structure of where that business is housed in Washington National and the covariance benefits, did that influence your appetite for wanting to entertain sale prospects on that?
It really had to do with a meeting of the minds between buyer and seller. In other words, one part, our desire to retain what is otherwise profitable business that helps with covering some of the unabsorbed overhead that naturally comes with this transaction. One part, the buyer, who was interested in some but not all of the business. It was really just that's the way the mechanics worked. It's a business that fits nicely with Washington National and certainly does provide net capital benefits due to its diversity.
Mark, maybe adding to both the answer to this question and your previous one. Washington National, the capital there supporting our business, including this annuity business that was part of the OCB segment, is not trapped capital. We have been getting dividends from the legal entity of Washington National. The business housed in CLIC is supported by capital that has been trapped. This transaction untraps that capital for us, which is also important in the considerations for a transaction.
Okay. Just finally, I think I missed the comments. I know you kind of emphasized the buybacks, the higher end of the range and the net debt of $69 million, but I think you said that you would kind of further review this. What would be the timeframe for further reviewing that?
Right now, mission one is close this successfully. We have a regulatory Form A approval process to go through. We have to launch into the transition planning, and really get this first and foremost across the finish line before we count all our dollars. While we're going through that, we'll be working with our board of directors, we'll be watching the marketplace and attempting to assess what best to do with the capital. Mark, in general, whether we're sitting on $160 million of deployable capital or $280 million of deployable capital, the process remains the same. What's the smartest thing to do with this capital? What's the most opportunistic? We're like a lot of companies in the life industry.
We've seen very strong performance in our stock price, which means the IRRs on buying back your stock now compete more heavily with reinvestment back in the business and other potential alternatives. What we hope you and shareholders see from today is we did, however, make a down payment, if you will, on capital deployment. Doubling the dividend is not an insignificant move. Going to the high end of our repurchase range is money, and we actually use the level of excess RBC down in our life company to bring in very high quality, traditional life, $8 million of EBIT, high-quality Bankers' earnings. Our stance right now is, one, make a meaningful down payment for your shareholders. Step two, be smart and assess the marketplace on deployment opportunities. That's what we'll do here over the coming months.
No time certain, we'll obviously guide as we come to better clarity on our plans.
Okay, thank you.
If you would like to ask a question, please press star, then the number 1 on your telephone keypad. That's star, then the number 1 to ask a question. Your next question is the line of Humphrey Lee.
Good morning, guys. A couple questions just to follow up. For the interest-sensitive life that you retained and going into Washington National, how does that block's performance compare to the block that you're selling to Wilton Re?
Yeah, it's actually quite different, but primarily different in terms of its origin. It actually is a block where there has been small amounts of life business continuing to be sold in the worksite platforms of Washington National. It's a very small block of interest-sensitive life, but it doesn't carry the same sorts of dynamics of the larger ISL block that was sold to Wilton Re. It's relatively stable. It's small. It's modestly profitable, although I wouldn't pay too close attention to the profitability of that block, but there are profits. More importantly is Washington National is in the business of selling a modest amount of life insurance, and this simply naturally folds back in as a block of business supporting their new business efforts.
Okay, got it. In terms of thinking about the impact to Washington National going forward, I think in the past, you kind of guided the OCB quarterly earnings kind of ranges from-- sorry, for the full year impact kind of ranges from $10 million-$20 million based on the performance of certain blocks. Based on what you mentioned about in terms of the earnings impact from this transaction, kind of lowering your earnings by $0.04, kind of estimating back solve it to roughly $50 million of pre-tax earnings. Should we think about in terms of earnings impact to Washington National would be somewhere like a $5 million addition by absorbing these two blocks back into the folds?
Yeah, I would say let me answer the question this way, some of it will be a non-answer. What I mean by that is we have to go through some of the careful segmentation work, which, of course, we'll come to you all early with in terms of what we land on. One of the more delicate issues to set forth is how you now go about allocating the unabsorbed overhead that's left after the sale of CLIC and where it best should be assigned. That means that creating earning streams around particular blocks of business become tricky. Here's one general thought when thinking about what is now left of OCB, okay? What I would generally say is what's left in OCB after removing the assets talked about today and long-term care is a pre-tax earning stream that's in the mid-teens, give or take, EBIT.
That's offset by unallocated, unabsorbed overhead that is in the high teens to approaching $20 million pre-tax. One thing to think about is if you pretend for a moment that OCB remains in place and doesn't get folded back into operating segments, it's an operation that's roughly running at break even because, one, it's needing to take on a significant amount of unabsorbed overhead, but it's also a block of annuities, life, and supplemental health that generates good EBIT. That help you?
Yes, got it.
Again, if you would like to ask a question, please press star, then the number one on your telephone keypad. Again, that's star, then the number one to ask a question. Again, if you would like to ask a question, please press star, then the number one. There are no further questions at this time.
Okay. Thank you, operator, and thanks everyone for your interest in CNO.
This concludes today's conference call. You may now disconnect at this time.