Q4 2021 CNO Financial Group Inc Earnings Call
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Speaker 1: Good day and thank you for standing by. Welcome to the C&L Financial Group fourth quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone.
Good day and thank you for standing by welcome to the P&L Financial group fourth quarter 2021 earnings conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
Can I ask a question. During this session you will need to press star one on your telephone.
Speaker 1: Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Ms. Jennifer Child, Vice President of Investor Relations and Sustainability. Please go ahead, ma'am.
Please be advised that today's conference is being recorded.
If you require any further assistance please press star zero.
I would now like to hand, the conference over to your speaker today, Ms. Jennifer Childe, Vice President of Investor Relations and sustainability. Please go ahead ma'am.
Speaker 2: Thank you, operator. Good morning and thank you for joining us on CNO Financial Group's fourth quarter 2021 earnings conference call. Today's presentation will include remarks from Gary Bujwani, Chief Executive Officer, and Paul McDonough, Chief Financial Officer. Following the presentation, we will also have other business leaders available for the question and answer period.
Thank you operator, good morning, and thank you for joining us on C. N O financial groups fourth quarter 2021 earnings conference call. Today's presentation will include remarks from Gary Botswana, Chief Executive Officer, and Paul Mcdonough, Chief Financial Officer. Following the presentation. We will also have other business leaders available for the <unk>.
Question and answer period.
Speaker 2: During this conference call, we will be referring to information contained in yesterday's press release. You can obtain the press release by visiting the media section of our website at cnoinc.com. This morning's presentation is also available in the investors section of our website and was filed in a form 8K yesterday. We expect to file our form 10K and post it on our website on or before February 25th.
During this conference call, we will be referring to information contained in Yesterdays press release, you can obtain the press release by visiting the media section of our web site at C. N O Inc. Dot com. This mornings presentation is also available in the investors section of our website and was filed in a form 8-K yesterday, we expect to see.
Our Form 10-K and posted on our website on or before February 25.
Speaker 2: 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 statement.
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 statement.
Speaker 2: Today's presentations contain 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.
Today's presentations contain 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.
Speaker 2: Throughout the presentations, we will be making performance comparisons, and unless otherwise specified, any comparisons made will be referring to changes between fourth quarter 2020 and fourth quarter 2021. And with that, I'll turn the call over to Gary.
Throughout the presentations, we will be making performance comparisons and unless otherwise specified any comparisons made will be referring to changes between fourth quarter 2020, and fourth quarter 2021 and with that I'll turn the call over to Gary.
Yeah.
Speaker 3: Thank you, Jennifer. Good morning, everyone, and thank you for joining us. Turning to slide Sakutosh one more minute,
Thank you Jennifer and good morning, everyone and thank you for joining us.
Turning to slide four and our full year performance.
Speaker 3: we delivered another strong year of results, reinforcing the strength and resiliency of our business. We reported tower
We delivered another strong year of results reinforcing the strength and resiliency of our business.
We reported operating earnings per share growth of 10%.
Speaker 3: generated free cash flow of $380 million and returned $468 million to shareholders, including record share repurchases of $402 million, reflecting 13% of our market cap as of the beginning of 2021.
Generated free cash flow of $380 million and returned $468 million to shareholders, including record share repurchases of $402 million.
13% of our market cap as of the beginning of 2021.
Speaker 3: Operating earnings per share grew 9%, excluding significant items and COVID impacts in both periods. Our results reflect the strength of our overall franchise, the stability of our operations, and the ability to manage our overall franchise.
Operating earnings per share grew 9%, excluding significant items and COVID-19 impacts in both periods.
Our results reflect the strength of our overall franchise.
The stability of our operations the diversity of our product suite and distribution channels.
Speaker 3: the impacts from our strategic transformation, and most importantly, the expertise and dedication of our associates.
The impacts from our strategic transformation.
And most importantly.
The expertise and dedication of our associates and agents.
Speaker 3: In 2021, we made significant progress against our strategic priorities.
In 2020 , one we made significant progress against our strategic priorities.
Speaker 3: Within our consumer division, we strengthen the integration between our direct to consumer and field agents.
Within our consumer division, we strengthened the integration between our direct to consumer and field agent channels.
Speaker 3: We meaningfully enhanced our online health insurance marketplace and generated agent productivity gains in each quarter of the year.
We meaningfully enhanced our online insurance markets, our online health insurance marketplace.
It generated agent productivity gains in each quarter of the year.
Speaker 3: Within our worksite division, we acquired direct path in February , significantly improving the attractiveness and capabilities of our worksite offer.
Within our Worksite Division, we acquired direct path in February significantly improving the attractiveness of the capabilities of our Worksite offering.
Speaker 3: further integrated our worksite businesses and began executing on our Crossrail playbook, and piloted initiatives to position us for growth in the hybrid work environment.
Further integrated our Worksite businesses and began executing on our cross sale playbook.
And piloted initiatives to position us for growth in the hybrid work environments.
Speaker 3: At the enterprise level, we prudently manage our operating expenses while investing in technology and digital tools to enhance our virtual sales and customer service capabilities.
At the enterprise level, we prudently manage our operating expenses, while investing in technology and digital tools to enhance our virtual sales and customer service capabilities.
We also made significant progress with our ESG program.
Speaker 3: Last week, MSCI upgraded our ESG score by two notches to single A.
Last week MSCI upgraded our ESG score by two notches to single a.
Speaker 3: We are now ranked in the top quartile of life insurance period.
We are now ranked in the top quartile of life insurance peers.
Speaker 3: In January this year, AMBEST upgraded the financial strength rating of CNOs, life and health subsidiaries from A- to A.
In January of this year a M best upgraded the financial strength rating of C and I was like in health subsidiaries from a minus eight.
Speaker 3: We are very pleased with this recognition of our strong balance sheet, operating performance, and high quality investment portfolio.
We are very pleased with this recognition of our strong balance sheet.
Operating performance and high quality investment portfolio.
Turning to slide five and our results for the quarter.
Speaker 3: For the fourth quarter, operating earnings per share were up $0.26 or $0.43 per share.
For the fourth quarter operating earnings per share were up 26 cents or 43%.
Speaker 3: Excluding COVID impacts and significant items in both periods, operating earnings per share were up 13 cents or 28 cents.
Excluding COVID-19 impacts in significant items in both periods operating earnings per share were up 13 cents or 28%.
Speaker 3: Our production metrics were strong and continue to exceed pre-pandemic levels in most areas, particularly within our direct-to-consumer business.
Our production metrics were strong and continue to exceed pre pandemic levels in most areas, particularly within our direct to consumer business.
Speaker 3: Our worksite business is making continued progress, but has not yet returned to pre-pandemic level.
Our Worksite business is making continued progress but has not yet returned to pre pandemic levels.
Speaker 3: Total collected premiums remained robust, exceeding pre-pandemic.
Total collected premiums remained robust exceeding pre pandemic levels.
Speaker 3: Our underlying insurance margins, excluding COVID impacts, performed well and we managed expenses for
Our underlying insurance margins, excluding COVID-19 impacts performed well and we managed expenses prudently.
Speaker 3: Our capital and investment portfolio remain conservatively positioned with ample liquidity.
Our capital and investment portfolio remain conservatively positioned with ample liquidity.
Speaker 3: We ended the quarter with an RBC ratio of 386% and $249 million in cash at the holding.
We ended the quarter with an RBC ratio of 386% a $249 million in cash at the holding company.
Speaker 3: This is after returning $116 million to shareholders through a combination of share repurchases and dividends.
This is after returning $116 million to shareholders through a combination of share repurchases and dividends.
I was wondering to slide six and our growth scorecard.
Speaker 3: all five growth scorecard metrics were up compared to the fourth quarter and full year of 2020.
All five growth scorecard metrics were up compared to the fourth quarter and full year of 2020.
Speaker 3: and most production metrics are higher relative to pre-pandemic 2019 levels.
And most production metrics are higher relative to pre pandemic 2019 levels.
Speaker 3: Live sales were up for the quarter compared to 2020 fueled largely by continued momentum in our direct-to-consumer channel. For the full year of 2015, ShDesign entered a global
Life sales were up for the quarter compared to 2020 fueled largely by continued momentum in our direct to consumer channel.
For the full year life sales were up 12%.
Speaker 3: Overall health sales were down 3% for the quarter, reflecting a continuing shift by consumers away from Medicare supplements.
Overall health sales were down 3% for the quarter, reflecting a continuing shift by consumers away from Medicare supplement.
But health sales were up 6% for the full year.
Speaker 3: Total collected life and health premiums were up 1% for the quarter. This reflects solid 5% growth in life collected premiums offset, as expected, by lower Medicare supplement premiums. For the full year, life and health premiums are up 1% for the quarter.
Total collected life and health premiums were up 1% for the quarter. This reflects solid 5% growth in life collected premiums offset as expected by lower Medicare supplement premiums.
For the full year life and health premiums were also up 1%.
Speaker 3: Annuity collected premiums were up 15% for the quarter and up 20% for the year. Relative to 2019, annuities were up 7%.
Annuity collected premiums were up 15% for the quarter and up 20% for the year relative to 2019 annuities were up 7%.
Speaker 3: Client assets in our brokers and advisory grew 25% year over year to $2.9 billion, fueled by new accounts, which were up 17%.
Client assets in our brokerage and advisory grew 25% year over year to $2 $9 billion fueled by new accounts, which were up 17%.
Speaker 3: net client asset inflows, and market value appreciation.
Net client client asset inflows and market value appreciation.
Sequentially client assets grew 8%.
Speaker 3: Fee revenue was up 54% for the quarter to $56 million reflecting significant growth in our distribution of third-party products, expansion of our broker dealer and registered investment advisor, and our 2021 acquisition of DirectPass.
Fee revenue was up 54% for the quarter to $56 million, reflecting significant growth in our distribution of third party products.
Spansion of our broker dealer and registered investment advisor.
And our 2021 acquisition of direct path.
Turning to our consumer division on slide seven.
Speaker 3: I continue to be pleased with how we're executing against our transformation objectives to drive synergies between our agent and direct-to-consumer business.
I continue to be pleased with how we're executing against our transformation objectives to drive synergies between our agents and direct to consumer businesses.
Speaker 3: Life sales were up 4% for the quarter driven by continued direct to consumer sales momentum, which was up 21%.
Life sales were up 4% for the quarter driven by continued director to consumer sales momentum, which was up 21%.
Speaker 3: Life sales generated by our exclusive field agents were down 12% as the tight labor market slowed recruitment of first year agency Tenta Cell a higher proportion of life policy.
Life sales generated by our exclusive field agents were down 12% as the tight labor market slowed recruitment of first year agents, who tend to sell a higher proportion of life policies.
Speaker 3: Health sales were down 4% with strong long-term care sales offset by continued weakness in Medicare.
Health sales were down 4% with strong.
Long term care sales offset by continued weakness in the Medicare supplement.
Speaker 3: As a reminder, our long-term care policies have short durations. The average benefit period is 12.5.
As a reminder, our long term care policies have short durations. The average benefit period is 12 months.
Speaker 3: As discussed in previous quarters, our market is experiencing a secular shift away from Medicare Supplement and towards Medicare.
As discussed in previous quarters, our market is experiencing a secular shift away from Medicare supplement and towards Medicare advantage.
Speaker 3: We continue to invest in both our Medicare supplements and Medicare Advantage offerings to ensure we remain well positioned to meet our customers' needs and preferences.
We continue to invest in both our Medicare supplement and Medicare advantage offerings to ensure we remain well positioned to meet our customers' needs and preferences.
Speaker 3: For example, later this year we plan to launch a new Medicare supplement product that we believe is more aligned with consumer preferences.
For example.
Later this year, we plan to launch a new Medicare supplement product that we believe is more aligned with consumer preferences.
Speaker 3: Total third-party sales grew 24% and Medicare Advantage sales were up 20% during the fourth quarter's annual enrollment period.
Total third party sales grew 24% in Medicare advantage sales were up 20% during the fourth quarters annual enrollment period.
Speaker 3: We attribute this growth to our high touch model, which blends the digital capabilities of our growing online health platform, myhealthpolicy.com, with the personal support of our teleagents and local bankers' life.
We attribute this growth to our high touch model, which blends the digital capabilities of our growing online health platform My health policy Dot com with the personal support of our tele agents and local bankers life agents.
Speaker 3: Recent investments are driving meaningful increases to lead flow and customer engagement in our online market.
Recent investments are driving meaningful increases to lead flow and customer engagement in our online marketplace.
Speaker 3: But what makes us different is the size and tenure of our professionally trained exclusive agent sales.
But what makes us different is the size and tenure of our professionally trained exclusive agent salesforce.
Speaker 3: Bankers Life local field agents guided 95% of our Medicare Advantage customers with their purchases. This is a unique strength in how we acquire service and retain our clients, which we believe cannot be easily replicated.
Bankers life local field agents guided 95% of our Medicare advantage customers with their purchases. This is a unique strength in how we acquire service and retain our clients, which we believe cannot be easily replicated.
Okay.
Speaker 3: On a combined basis, the number of Medicare Advantage and Medicare Supplement policies sold was up 12% over the fourth quarter of 2020 and 2% over the full year.
On a combined basis, the number of Medicare advantage and Medicare supplement policies sold was up 12% over the fourth quarter of 2022% over the full year of 2020.
Speaker 3: Annuity collective premiums were up 15% compared to the prior year quarter and the average annuity policy size rose 12.
Annuity collected premiums were up 15% compared to the prior year quarter and the average annuity policy size rose 12%.
Speaker 3: We continue to maintain strict pricing discipline on our annuities to balance sales growth and profitability.
We continue to maintain strict pricing discipline on our annuities to balance sales growth and profitability.
Speaker 3: Participation and crediting rates are reviewed regularly to reflect current macro environment conditions.
Participation in crediting rates are reviewed regularly to reflect the current macro environment conditions.
Speaker 3: we remain very comfortable with the economics of our...
We remain very comfortable with the economics of our annuity book.
Speaker 3: Client assets and brokerage and advisory grew 25% year over year to $2.9 billion in the fourth quarter.
Client assets and brokerage and advisory grew 25% year over year to $2 $9 billion in the fourth quarter.
Approximately two thirds of the increase.
Speaker 3: came from new accounts and one third from market appreciation.
Came from new accounts and one third from market appreciation.
Speaker 3: Combined with our annuity account values, we now manage more than $13 billion of assets for our clients.
Combined with our annuity account values, we now manage more than $13 billion of assets for our clients.
Speaker 3: As planned, this has fundamentally shifted the relationship we have with our customers.
As planned this is fundamentally shifted the relationship we have with our customer base.
Speaker 3: Unlike some insurance products, which can be transactional in nature, investment products typically create deeper and longer lasting customer relations.
Unlike some insurance products, which can be transactional in nature investment products, typically create deeper and longer lasting customer relationships.
Speaker 3: In recent years, we proactively shifted our agent recruiting strategy to focus more heavily on targeted approaches paired with strategies to boost the productivity levels of our existing agencies.
In recent years, we proactively shifted our agent recruiting strategy to focus more heavily on targeted approaches paired with strategies to boost the productivity productivity levels of our existing agent base.
Speaker 3: While we recruit fewer new agents, the new agents that we do appoint are more likely to succeed and stay with us over time. the tight labor
While we recruit fewer new agents, the new agents that we do a point or more likely to succeed and stay with us over time.
The tight labor market impacted us during the fourth quarter and throughout 2021.
Speaker 3: Our total producing agent comp declined 12% as we recruited fewer first year.
Our total producing agent count declined 12% as we recruited fewer first year agents.
Speaker 3: As a reminder, producing agent count represents a monthly average of agents that have submitted at least one policy during the quarter.
As a reminder, producing agent count represents a monthly average of agents that have submitted at least one policy during the quarter.
Okay.
Speaker 3: Importantly, the total agent productivity is up over the prior year and retention remains strong among our veteran agents who typically generate higher premiums per policy.
Importantly, the total agent productivity is up over the prior year and retention remains strong among our veteran agents.
Typically generate higher premiums per policy.
Speaker 3: We continue to deploy various programs to boost our new agent recruiting, but expect near-term recruiting headwinds to remain. Turning to slide 8 in our worksite division.
We continue to deploy various programs to boost our new agent recruiting, but expect near to near term recruiting headwinds to remake.
Turning to slide eight in our Worksite Division.
Worksite sales were up 16% in the fourth quarter.
Speaker 3: We continue to see steady improvement in this business despite prolonged COVID It's rough
We continue to see steady improvement in this business despite prolonged COVID-19 disruption.
Speaker 3: We expect the pace of worksite recovery to improve in the coming quarters as COVID disruptions subside and worksites reopen more broadly.
We expect the pace of Worksite recovery to improve in the coming quarters as Covid disruptions subside and work sites reopen more broadly.
Speaker 3: To respond to the new hybrid work environment, we continue to introduce new technologies to our field agents to improve virtual access to employer groups and their employees.
To respond to the new hybrid work environment, we continue to introduce new technologies for field agents to improve virtual access to employer groups and their employees.
Speaker 3: We also have programs in place to generate new employer group leads and offer new products and services to our employer.
We also have programs in place to generate new employer group leads and offer new products and services to our employer clients.
Speaker 3: Retention of our existing employer customers remains strong and employee persistency within these employer groups continues to be stable.
Retention of our existing employer customers remained strong and employ persistency within these employer groups continues to be stable as expected.
Speaker 3: Our producing agent count was down 11% year over year and down 1% sequentially, largely as a result of weaker first year agent recruitment due to the challenging label.
Our producing agent count was down 11% year over year and down 1% sequentially largely as a result of weaker first year agent recruitment due to the challenging labor market.
Speaker 3: We recently launched a new field agent referral program that is generating promising results in its early stages.
We recently launched a new field agent referral program that is generating promising results in its early stages.
Speaker 3: We have seen higher productivity levels across all age groups.
We have seen higher productivity levels across all age groups, including first year agents.
Speaker 3: Similar to previous quarters, retention and productivity levels among our veteran agents remained very strong.
Similar to previous quarters retention and productivity levels among our veteran agents remained very strong.
The integration of our fee based businesses is progressing nicely.
Speaker 3: Fee revenue within Worksite more than doubled in the quarter due to the inclusion of DirectPass results.
Revenue within Worksite more than doubled in the quarter due to the inclusion of direct past results.
Speaker 3: We also saw a 20% increase in the average client size in our benefits administration business as a result of cross care.
We also saw a 20% increase in the average client size in our benefits administration business as a result of cross sale activity.
Speaker 3: Market feedback on our unique combination of worksite products and services remains positive.
Market feedback on our unique combination of Worksite products and services remains positive.
Yeah.
Turning to slide nine.
Speaker 3: A robust free cash flow enabled us to return $116 million to shareholders in the fourth quarter, including $100 million in share buybacks.
Our robust free cash flow enabled us to return $116 million to shareholders in the fourth quarter, including $100 million in share buybacks.
Our capital allocation strategy remains unchanged, we intend to deploy 100% of our excess capital to its highest and best use over time.
Speaker 3: We intend to deploy 100% of our excess capital to its highest and best use over time.
Speaker 3: While share repurchases form a critical component of our strategy, organic and inorganic investments also play an important role.
While share repurchases form a critical component of our strategy organic and inorganic investments also played an important role.
And with that I'll turn it over to Paul.
Speaker 3: Thank you, Gary. And good morning. Everyone turn into the financial highlights on slide 10. We generated operating earnings per share of 87 cents in the quarter. Which is at 43% year over year as reported. And up 28% excluding significant items and COVID impacts in both periods.
Thank you Gary and good morning, everyone turning to the financial highlights on Slide 10, we generated operating earnings per share of <unk> 87 cents in the quarter, which is up 43% year over year as reported and up 28%, excluding significant items and COVID-19 impacts in both periods.
Speaker 3: Results for the quarter benefited from solid underlying insurance margins, ongoing net favorable COVID-related impacts, and disciplined expense and capital management, partially offset by still solid but moderating alternative investment results.
For the quarter benefited from solid underlying insurance margins ongoing net favorable COVID-19 related impacts and disciplined expense and capital management, partially offset by still solid but moderating alternative investment results.
Speaker 3: Fee income is flat year over year, reflecting growth in fee income from the sale of third-party Medicare Advantage policies offset by a decline in fee income from our worksite business due to ongoing challenges accessing employers and employees in the workplace during COVID.
Income was flat year over year, reflecting growth in fee income from the sale of third party Medicare advantage policies offset by a decline in fee income from our Worksite business due to ongoing challenges accessing employers and employees in the workplace during COVID-19 .
Speaker 3: As expected, the sum of expenses allocated to products and not allocated to products, excluding significant items, was down sharply versus the fourth quarter of 2020.
As expected some of the expenses allocated to products and not allocated to products, excluding significant items was down sharply versus the fourth quarter of 2020.
Speaker 3: For the full year, total expenses were up 2.8%, reflecting operating efficiency, coupled with continued targeted growth investments.
For the full year total expenses were up two 8%.
<unk> operating efficiency, coupled with continued targeted growth investments.
Speaker 3: Over the last four quarters, we deployed a record $402 million of excess capital on share repurchases, reducing weighted average shares outstanding by 8%.
Over the last four quarters, we deployed a record $402 million of excess capital on share repurchases, reducing weighted average shares outstanding by 8%.
Speaker 3: Operating return on equity for the year was 12.1 percent or 11.8 percent excluding significant items.
Operating return on equity for the year was 12, 1% or 11, 8% excluding significant items.
Turning to slide 11.
Speaker 3: The insurance product margin, excluding significant items, was up $9 million, or 4%, in the fourth quarter as compared to the prior year period.
Insurance product margin, excluding significant items was up $9 million or 4% in the fourth quarter.
Paired to the prior year period.
Speaker 3: excluding favorable COVID impacts in both periods, total insurance margin was up $12 million or 6%.
Excluding favorable COVID-19 impacts in both periods total insurance margin was up $12 million or 6%.
Speaker 3: In the aggregate, the favorable net COVID impacts decrease $3 million year over year from $19 million in the fourth quarter of 2020 to $16 million in the current year period.
In the aggregate the favorable net COVID-19 impacts decreased $3 million year over year.
$19 million in the fourth quarter of 2000 $20 million to $16 million in the current year period.
Speaker 3: The year over year increase in our annuity margin reflects growth in the business, but also reflects volatility from FAS 133 accounting for the embedded derivative reserve related to our fixed index annuities, which had about a $5 million favorable impact in the fourth quarter of 2021 as compared to a neutral impact in the prior year period.
The year over year increase in our annuity margin reflects growth in the business, but also reflects the volatility from the past 133 accounting for the embedded derivative reserve related to our fixed index annuities, which had about a $5 million favorable impact in the fourth quarter of 2021 as compared to a neutral impact from that.
Prior year period.
Speaker 3: We also benefited in the current quarter from favorable non-COVID mortality in our payout annuity block.
We also benefited in the current quarter from favorable non COVID-19 mortality.
Out of annuity block.
Speaker 3: In our life business, we saw a significant increase in unfavorable COVID mortality impacts in the fourth quarter as compared to the third quarter of 2021.
In our life business, we saw a significant increase in unfavorable COVID-19 mortality impacts in the fourth quarter as compared to the third quarter of 2021.
Speaker 3: due to a slight shift in relative mortality to older ages and volatility in the claims reporting lag from quarter to quarter.
Due to a slight shift in relative mortality to older ages and volatility in the claims reporting lag.
From quarter to quarter.
Speaker 3: In general, looking at not just a single quarter, but over longer periods of time, we are not seeing any material change in COVID mortality severity or incidence per thousand reported US deaths.
In general looking at not just a single quarter, but over longer periods of time, we are not seeing any material change in COVID-19 mortality severity or incidence per thousand reported in U S deaths.
Speaker 3: Excluding COVID impacts, our life margin was down $6 million year over year due to increased non-deferable advertising spend. In our health business,
Excluding COVID-19 impacts our life margin was down $6 million year over year due to increased non deferrable advertising spend.
In our health business, the favorable Covid impact.
Speaker 3: remained flat at $35 million in both periods. However, there was some movement between the individual health Sisters...
Remained flat at $35 million in both periods. However, there was some movement between the individual health lines.
Speaker 3: Our health margins benefited from both continued deferral of care across all three business lines and excess mortality within long term care and supplemental health, which led to favorable reserve release.
Our health margins benefited from both continued deferral of care across all three business lines and excess mortality within long term care and supplemental health, which led to favorable reserve releases.
Speaker 3: As referenced in our earnings press release, we completed our annual gap actuarial assumption review in the fourth quarter, which had a pre-tax net favorable impact of $26 million in operating earnings.
As referenced in our earnings press release, we completed our annual GAAP actuarial assumption review in the fourth quarter.
Which had a pre tax net favorable impact of $26 million in operating earnings, which we've called out as a significant item in the quarter.
Speaker 3: which we've called out as a significant item in the quarter. The favorable impact was driven by lower initial portfolio rates, resulting from asset turnover in the annuity portfolio, driving a favorable adjustment to the embedded derivative reserve related to our fixed index annuities. Turning to slide 12.
The favorable impact was driven by lower initial portfolio rates, resulting from asset turnover in the annuity portfolio driving a favorable adjustment to the embedded derivative reserve related to our fixed index annuities.
Turning to slide 12.
Speaker 3: Investment income allocated to products was up modestly as the impact from growth in the net liabilities and related assets more than offset a decline in yield.
Investment income allocated to products was up modestly as the impacts from growth in the net liabilities and related assets.
Than offset a decline in yield.
Speaker 3: Our new money rate of 3.67% for the quarter was up 12 basis points sequentially, reflecting higher yields and selective direct investment.
Our new money rate of 367% for the quarter was up 12 basis points sequentially, reflecting higher yields and selective direct investments.
Speaker 3: Investment income not allocated to products, which is where the variable components of investment income flow through, decreased $15 million, reflecting still solid but moderated performance within our alternative investment portfolio. Our new investments comprised $683 million of assets, with an average rating of A- and an average duration of 11.4 years.
Investment income not allocated products, which is where the variable components of investment income flow through decreased $15 million, reflecting still solid but moderated performance within our alternative investment portfolio.
Our new investments comprised $683 million of assets with an average rating of AA minus and an average duration of 11 four years.
Speaker 3: Please see slides 23 and 24 of the earnings presentation for more detail.
See slides 23, and 24 of the earnings presentation for more detail.
Speaker 3: As we mentioned on our third quarter call, we established a $3 billion funding agreement backed note program in September and closed on $500 million of notes in October of last year.
As we mentioned on our third quarter call. We established a $3 billion funding agreement backed note program in September .
And closed on $500 million of notes in October of last year in.
Speaker 3: In January of this year, we closed on an additional $900 billion in net.
In January of this year, we closed on an additional $900 million of notes.
Speaker 3: We expect the FABN program to contribute to earnings about 100 basis points pre-tax, annualized per dollar, notes outstanding, net of the expenses associated with the program. Our fourth quarter net investment income not allocated to products included $1 million pre-tax and net spread income associated with the FABN program. Please see page 17 of our quarterly financial supplement for more detail.
We expect the F ADN program to contribute to earnings about 100 basis points pre tax.
<unk> per dollar notes outstanding.
The expenses associated with the program.
Our fourth quarter net investment income not allocated the products included $1 million pretax net spread income associated with the F. A b M program. Please see page 17 of our quarterly financial supplement for more detail.
Speaker 3: Turning to slide 13, at year end, our invested assets totaled $29 billion, up 5% year over year.
Turning to slide 13.
At year end, our invested assets totaled $29 billion up 5% year over year.
Speaker 3: 95.4% of our fixed maturity portfolio at year end was investment grade rated with an average rating of single A.
95, 4% of our fixed maturity portfolio at year end was investment grade rated with an average rating of single a.
Speaker 3: Reflecting our recent up in quality bias, the allocation to single A rated or higher securities was up 460 basis points year over year, while the triple B allocation was down 400 basis points and the allocation to high yield was down 60 basis points.
Reflecting our recent up in quality bias the allocation to single a rated or higher securities was up 460 basis points year over year.
While the Triple B allocation was down 400 basis points and the allocation to high yield was down 60 basis points.
Turning to slide 14.
Speaker 3: Our fourth quarter free cash flow reflects lower dividends out of the operating companies as we absorb the impact of the revised C1 factors on our consolidated RBC ratio.
Our fourth quarter free cash flow reflects lower dividends out of the operating companies.
We absorbed the impact of the revised C. One factors.
Our consolidated RBC ratio.
Speaker 3: As expected, the impact was approximately 16 RBC points for $80 million of capital.
As expected the impact was approximately 16 RBC points for $80 million of capital.
Speaker 3: In addition, funding the initial $500 million of FABN notes consumed approximately $20 million of capital in the quarter.
In addition funding the initial $500 million of debt notes consumed approximately $20 million of capital in the quarter.
Turning to slide 15.
Speaker 3: At quarter end, our consolidated RBC ratio was 386%, which represents approximately $55 million of excess capital relative to a 375% target RBC.
At quarter end, our consolidated RBC ratio was 386%.
Which represents approximately $55 million of excess capital relative to a three 375% target RBC.
Speaker 3: This 386% is after the impact of the revised C1 vaccine.
This 386% after the impact of the revised C. One factors.
Speaker 3: We are refining our target consolidated RBC ratio to a point estimate of approximately 375%. This point estimate is at the low end of our previous target range of 375 to 400% and reflects the company's strong and stable operating results and balanced risk profile.
We are refining our target consolidated RBC ratio to a point estimate of approximately 375%.
At this point estimate is at the low end of our previous target range of $3, 75% to 400%.
And reflects the company's strong and stable operating results and balanced risk profile.
Speaker 3: In the context of a stress scenario, we would expect to flex lower temporarily, returning at 375% over a short period of time.
In the context of a stress scenario, we would expect to flex lower temporarily returning to $3, 75% over a short period of time.
Speaker 3: We believe the 375% RBC target continues to adequately support our credit ratings and is aligned with our risk appetite.
Believe the 375% RBC target continues to adequately support our credit ratings and is aligned with our risk appetite.
Speaker 3: Our holding company liquidity at quarter end was $249 million, which represents $99 million of excess capital relative to our $150 million minimum holdco liquidity target.
Our holding company liquidity at quarter end was $249 million, which represents $99 million of excess capital relative to our $150 million minimum holdco liquidity target.
Speaker 3: Turning to slide 16. As we look ahead to 2022, a significant amount of uncertainty persists due to the ongoing COVID-19 pandemic.
Turning to slide 16.
As we look ahead to 2022.
Difficult amount of uncertainty persists due to the ongoing COVID-19 pandemic.
Speaker 3: Nevertheless, we can share some directional baseline expectations.
Nevertheless, we can share some directional baseline expectations.
Speaker 3: We expect continued positive sales momentum across our five key scorecard metrics, despite ongoing recruiting challenges in the tight labor market, which will continue to pressure agent count.
We expect continued positive sales momentum across our five key scorecard metrics.
Mike ongoing recruiting challenges in the tight labor market, which will continue to pressure agent counts.
Speaker 3: We expect continued net favorable COVID impacts on our insurance product margin papering over the course of the year.
We expect continued net favorable COVID-19 impacts on our insurance product margin tapering over the course of the year.
Speaker 3: This assumes that no additional surge in COVID-19 infections and deaths emerges in the wake of the current surge from the Omicron variant.
This assumes that no additional surge in COVID-19 infections and deaths emerges in the wake of the current surge from beyond the Crown variant.
Speaker 3: We expect net investment income allocated to products to remain relatively flat, as growth in assets is mostly offset by lower portfolio yields, reflective of both the lower interest rate environment and our up in quality shift in asset allocation.
We expect net investment income allocated to products to remain relatively flat.
As growth in assets was mostly offset by lower portfolio yields reflective of both the lower interest rate environment and our up in quality shift in asset allocation.
Speaker 3: We expect net investment income not allocated to products to trend down as compared to the elevated levels in recent quarters.
We expect net investment income not allocated to products to trend down as compared to the elevated levels in recent quarters.
Speaker 3: We expect fee income to trend up as we grow our third party Medicare Advantage distribution and the fee income components of our worksite business.
We expect fee income to trend up as we grow our third party Medicare advantage distribution and the fee income components of our Worksite business.
Speaker 3: We expect the sum of our allocated and not allocated expenses X significant items to trend modestly higher as we capture operating efficiencies while also investing in growth.
We expect the sum of our allocated and not allocated expenses.
Significant items to trend modestly higher as we capture operating efficiencies.
While also investing in growth.
Speaker 3: With respect to capital and liquidity, we will manage to our target 375% RBC and move closer to our $150 million minimum holding company liquidity target.
With respect to capital and liquidity, we will manage to our target of 275% RBC.
And being closer to our $150 million minimum holding company liquidity target.
Speaker 3: Finally, we expect free cash flow to moderate relative to recent trends, reflecting less favorable insurance product margin impacts from COVID and diminishing alternative investment returns, capital strain from new business, and the ramp up of the FABN program. We nevertheless expect our free cash flow conversion to remain at the high end of our tier group range.
Finally, we expect free cash flow to moderate relative to recent trends, reflecting less favorable insurance product margin impacts from Covid and diminishing alternative investment returns capital strained from new business and the ramp up of D. S. ADN program. We Nevertheless, expect our free cash flow conversion to Renee.
And at the high end of our peer group range.
Speaker 3: Before I turn it back to Gary, I'd like to provide a brief update on where we stand with our progress. In adopting ASC 944 for a long duration targeted improvement standard.
Before I turn it back to Gary I'd like to provide a brief update on where we stand with our progress.
Adopting ASC 944 for the long duration targeted improvements standard <unk>.
Speaker 3: First, as you all know, it is important to note that the accounting change will have no impact on statutory accounting or the capital required by regulators, cash flows, or lifetime GAAP profits.
First as you all know it is important to note that the accounting change will have no impact on statutory accounting or the capital required by regulators cash flows where lifetime GAAP profits.
Speaker 3: We expect the most significant impact on the January 1, 2021 transition date will be the requirement to update the discount rate assumption used to determine the value of the liability for future policy benefits with a rate that is generally equivalent to a singly yield matched to the duration of our liability.
We expect the most significant impact on the January one 2021 transition date will be the requirement to update the discount rate assumption used to determine the value of the liability for future policy benefits with a rate that is generally equivalent to a single a yield matched to the duration of our liabilities.
Speaker 3: We expect this change will result in a material decrease to accumulated other comprehensive income at the transition date.
We expect this change will result in a material decrease to accumulated other comprehensive income at the transition date.
Speaker 3: After the transition date, we will be required to update the discount rate each reporting period with changes recorded in AOCI. We also expect the adoption of this standard to change the pattern for future profit emergence following the transition date.
After the transition date, we will be required to update the discount rate each reporting period with changes recorded in.
A OCI.
We also expect expect the adoption of this standard to change the pattern future profit emergence.
Following the transition date.
Speaker 3: We have made significant progress toward the January 1, 2023 adoption of the standard. And we expect to be able to begin to provide quantitative impacts in the second or third quarter of this year. And with that, I'll turn it back over to...
We have made significant progress toward the January one 2023 adoption of the standard.
We expect to be able to begin to provide quantitative impacts in the second or third quarter of this year.
And with that I'll turn it back over to Gary.
Okay.
Thank you Paul.
Speaker 3: I'm pleased with our performance in the quarter and for the full year, along with the progress we've made against our strategic priorities.
I am pleased with our performance in the quarter and for the full year, along with the progress we've made against our strategic priorities.
Speaker 3: I thank our associates and agents for their continued commitment and dedication to helping our customers every day. While visibility into COVID's ongoing impact remains unclear, the earnings and the impact of COVID-19 on our customers is not only a result of our
I, thank our associates and agents for their continued commitment and dedication to helping our customers every day.
While visibility into Covid ongoing impact remains unclear.
The earnings and cash flow generating power of the company remains robust.
Speaker 3: We are confident that we will navigate the pandemic from a position of strength while continuing to generate value for our shareholders.
We are confident that we will navigate the pandemic from a position of strength, while continuing to generate value for our shareholders.
Speaker 3: Thank you for your support of and interest in CNO Financial. We will now open it up for questions.
Thank you for your support of and interest in <unk> financial.
We will now open it up for questions operator.
Speaker 1: As a reminder, to ask a question, you will need to press star one on your telephone. So we draw your question, press the pound key, please end by while we compile the KineRaster.
As a reminder to ask a question you will need to press star one on your telephone.
All your question press the pound key please standby, while we compile the Q&A roster.
Speaker 1: Your first question comes from the line of Eric Bess from Autonomous Research. Your line is now open.
Your first question comes from the line of Erik Bass from Autonomous Research. Your line is now open.
Speaker 4: Hi, thank you. Just to start, you mentioned that you expect the free cash flow conversion rate to remain strong, even though the dollars of free cash flow will decline from where they've been running. So can you help to mention this for us? Is there a conversion rate range that you could give that we should assume?
Hi, Thank you.
Just to start you mentioned that you expect the free cash flow conversion rate to remain strong even though the dollars of free cash flow will decline from where they've been running. So can you help dimension. This for US is there a conversion rate range that you could give that we should assume.
Speaker 3: Sure. Hi, Eric. It's Paul. So just looking at this ratio that's calculated across our peer group, looking back over the last couple of years, it looks to be in the range of kind of mid-50s to high-80s, low-90s. We would expect to be in the top quartile of that range.
Sure Hi, Erik it's Paul So just looking at them.
This ratio is calculated across your peer group.
Looking back over the last couple of years.
It looks too.
D in the range of kind of.
Mid fifties too.
Haiti's low nineties, we would expect to be in the top quartile of that range.
Speaker 4: Got it. Thank you. And then can you talk a little bit about your claims experience in health and long term care? And other companies have started to see this normalized, but your results aren't really showing this yet. So is there anything different in your client or product mix that could explain this? And how are you thinking about 2022 claims patterns? Sure.
Got it thank you.
And then can you talk a little bit about your claims experience in health and long term care.
Other companies have started to see this normalize but your results aren't really showing this yet so is there anything different in your client or product mix that could explain this and how are you thinking about <unk>.
2022 claims patterns.
Sure.
So.
Speaker 3: Paul again, I know it's tough for us to say because we don't see the data of our peers.
It's Paul again.
Tough to say, because we don't see the data.
Tears.
Speaker 3: What we can say is that we are recording the results based on the claims that we're seeing.
But what we what we can say is that we are.
Recording the results based on.
The claims that we're seeing and the.
Speaker 3: The results are based on a consistent application of the claims handling, which has also been consistent, and the consistent application of our financial reporting, very tight controls around that. The other thing I'd say is that,
The results are based on a consistent application.
The claims handling which has also been consistent and the consistent application of our financial reporting very tight controls around that.
The other thing I'd say is that.
Speaker 3: Yeah, this is speculation, but I suspect the difference in our experience versus other companies has to do with the demographic profile of our policyholders. And with respect to LTC in particular, you know, the benefits in our policies as compared to benefits and policies at other companies. In terms of going forward,
Hum.
This is speculation, but I suspect the difference in our experience versus other companies has to do with the demographic demographic profile of our policyholders.
And with respect to LTC in particular.
The benefits in our policies as compared to.
Benefits and policies at other companies.
In terms of going forward.
Speaker 3: You know, as I, as we stated in our, in our prepared remarks, our expectation is that we continue to see. Net favorable coded benefits, including in long term care. For some period of time in 22. But tapering again, presuming that there's no additional surge beyond the. The current on the current surge.
As we stated in our in our prepared remarks, our expectation is that we continue to see net.
Net favorable COVID-19 benefits, including in long term care.
For some period of time in 'twenty two.
But tapering again presuming that there is no additional surge beyond the current on the current surge.
Got it thank you.
Mhm.
Speaker 1: Your next question comes from the line of John Barnidge from Piper Center. Your line is now open.
Your next question comes from the line of John Barnidge from Piper Sandler Your line is now open.
Speaker 3: Thank you very much. Maybe sticking with the COVID net benefit a little bit. Can you maybe talk about the progression during the quarters and months went along and then maybe from December into January as maybe people develop COVID fatigue with the Omicron variant. Thank you.
Thank you very much maybe sticking with the COVID-19 that benefit a little bit.
Can you maybe talk about the progression during the quarter as the months went along in that.
From December into January as maybe people developed COVID-19 fatigue with the omicron Varian. Thank you.
Speaker 3: Sure. Hey, John . It's Paul. So the claims experience during the fourth quarter was fairly consistent.
Sure Hey, John It's Paul.
So the the claims experienced during the fourth quarter was.
Fairly consistent.
Speaker 3: year over year we did see in our long-term care and our supplemental health products less favorable impact from deferral of care but more favorable impact from mortality.
Year over year.
We did see in our long term care in our supplemental health.
<unk> products.
Less.
The favorable impact from deferral of care.
But more favorable impact.
From mortality.
Speaker 3: Okay, great. And then my follow-up question, if I could, can you maybe talk about the improvement in worksite sales? Do you think it's recovered off a lower base or real growth as people maybe return to...
Okay, Great and then my follow up question, if I could can you maybe talk about the improvement of Worksite sales.
Do you think it's recovered off a lower base or real growth as people may be turned off.
Yeah.
Speaker 3: Yeah, hey, John , this is Gary. We do expect worksite to recover. I want to just emphasize
Yeah, Hey, John this is Gary.
We do expect Worksite to recover I want to just emphasize a few things we remain extremely bullish on the business, we see a trend continuing where more and more employees. We will seek to get some of these coverages to put their employers. So we fundamentally believe in the business.
Speaker 3: We remain extremely bullish on the business. We see a trend continuing where more and more employees will seek to get some of these coverages to believe they're employers. So we fundamentally believe in the business. We've actually done reasonably well across two dimensions, number one, keeping the employers and employees that we have and number two, signing up new employees.
We've actually done reasonably well across two dimensions number one keeping the employers and employees that we have.
And number two signing up new employers, however that doesn't translate into sales growth until we can get access to the actual employees to enroll.
Speaker 3: However, that doesn't translate into sales growth until we can get access to the actual employees to enroll them. So an employer says, yes, I'll offer these products to my employees, but we've got to get in there and enroll them. And of course we can't do that until more work sites open. So that's been up and down, as you know, across the country, but we expect that as more workplaces open.
Unemployed or says, yes, I'll offer these products to my to my employees.
But we've got to get in there and enroll them and of course, we can't do that until more work sites opened so that's been up and down as you know across the country, but we expect that adds more workplaces open.
Speaker 3: The results will improve on a sequential basis. And remember, we're also going to markets in 2022.
These results will improve on a sequential basis.
And remember, we're also going to market in 2022.
Speaker 3: in a much more improved position than we were, say, in 2020. We now have a technology plan.
Much more improved position than we were say in 2020, we now have a technology platform. We now have our service and advice platform and we continue to improve our products. Finally, we've invested in technology for our agents to be able to better interact with these customers.
Speaker 3: we now have a service and advice platform and we continue to improve our products.
Speaker 3: Finally, we've invested in technology for our agents to be able to better interact with these customers. So we think as these office locations open up, we will see an improvement and we remain very committed and very bullish on the process.
Think as these office locations open up we will see an improvement and we remain very committed and very bullish on the prospects.
Thank you.
Speaker 1: Your next question comes from the line up. Ham freely from Dolly and Partners, your line is now open.
Your next question comes from the line of Humphrey Lee from Dowling and partners. Your line is now open.
Speaker 5: Good morning and thank you for taking my questions. My first question is related to fee income. I was hoping you can provide a little more detail in terms of what you saw this quarter. The fee revenue growth of over 50% was definitely very strong. But the fee-related expenses grew even at a higher clip. So can you just talk about the performance of the different businesses that run through the fee income line, meaning Medicare Advantage, Broker Dealer, Direct Path, and MyHealthPolicy.com?
Good morning, and thank you for taking my questions. My first question is related to fee income I was hoping you can provide a little more detail in terms of what you saw this quarter.
The fee revenue growth of over 50% was definitely very strong, but the fee related expenses grew even at a high clip. So can you just talk about the performance of the different businesses that run through the fee income line like meaning Medicare advantage broker dealer the right.
Pat in my Health policy Dot com.
Speaker 3: Yeah Humphrey this is Gary thanks for the question and for calling in. I'll make some general comments and then I'll invite Paul to supplement it as he sees appropriate. I think the first thing I would say for all of our shareholders we are very pleased with the way the fee business has evolved.
Yes.
Humphrey This is Gary thanks, Thanks for the question and for calling and I'll make some general comments and then I'll invite Paul to supplement it.
It seems appropriate.
Yeah.
I think the first thing I would say for all of our shareholders. We are very pleased with the way the fee business has evolved in the aggregate.
Speaker 3: As you point out, there are a few different components to the fee business and I'll speak to each of them just now.
As you point out there are a few different components to the fee business and I'll speak to each of them Jaguar.
Speaker 3: The first is the fee business that we generate or the fees that we generate from the Medicare Advantage.
The first is the fee business that we generate are the fees that we generate from the Medicare advantage sales.
Speaker 6: I was quite pleased with the progress that we showed. Remember that we just launched this site.
I was quite pleased with the progress that we showed remember that we just launched this site. We think there is a significant opportunity and a change in consumer behavior, where they're interested in pursuing or purchasing some of these products online. So we're very bullish on that and we.
Speaker 6: We think there is a significant opportunity and a change in consumer behavior where they're interested in pursuing or purchasing some of these products online. So we're very bullish on that. And we saw very nice growth. And I think frankly we've just gotten to scratch the surface.
We saw very nice growth and I think frankly, we've just gotten discretion service I think where we will differentiate ourselves is marrying those technology offerings are those online offerings with real agents support I think that's what we can deliver a different long term results and perhaps others have.
Speaker 6: I think where we will differentiate ourselves is marrying those technology offerings to those online offerings.
Speaker 6: with real agent support. I think that's where we can really deliver a different long-term result than perhaps others have.
Speaker 6: So we were very pleased in that. That growth was very good, very strong.
So we were very pleased in that that growth was very good very strong.
Speaker 6: Now we did have to invest and we continue to invest in those technology offers.
We did have to invest and we continue to invest in those technology offerings.
Speaker 6: The second area that you see is the broker-dealer and there too, remember, we launched the broker-dealer in 2017 and the entire strategy behind that was to make the consumer relationship stickier, to move away from transactions, i.e. an insurance product that's simply an expense, and move more towards relationships where our consumers are entrusting us with their investments and really changing that relationship.
Area that you see with the broker dealer and there too remember we launched the broker dealer in 2017 and the entire strategy behind that was to make the consumer relationships stickier to move away from transactions I E. An insurance product that simply an expense and move more towards relationships where our.
<unk> and <unk>.
Trusting us with their investments and really change in that relationship that also continues to see very robust growth now Atlantic most insurers, we run our broker dealer frankly, not for the Standalone profit that it generates we wanted for the relationship there.
Speaker 6: That also continues to see very robust growth. Now like most insurers, we run our broker-dealer frankly not for the standalone profit that it generates. We run it for the relationship that it forms.
The third and final category.
Speaker 6: main category of our fee income has to do in our worksite business and that pertains particularly to the investments we made in web benefits and direct path. In both cases as I referenced earlier worksites have not yet fully opened so we haven't been able to exploit the full potential of those businesses and those additional offerings to our worksite customers. So we continue to invest in them and the revenue growth hasn't been as strong in those two areas because the worksites are.
Main category of our fee income has to do on our Worksite business and that pertains, particularly to the investments we made in web benefits and direct path in both cases.
As I referenced earlier work sites have not yet fully opened so we haven't been able to exploit the full potential of those businesses and those additional offerings to our worksite customers. So we continue to invest in them and the revenue growth hasn't been as strong in those two areas because the work sites aren't yet open.
Speaker 6: But we're confident that once more worksites open, we will see that revenue and profit growth kick back up. Last comment I'd make, in the aggregate, I think it's important to keep all of this in perspective. These are still, relatively speaking, smaller pieces of a much larger CNO order.
But we're confident that once more work sites opened we will see that growth.
Revenue and profit growth pick back up.
Last comment I'd make it in the aggregate I think it's important to keep all of this in perspective.
These are still relatively speaking smaller pieces of a much larger C&I organization.
Speaker 6: Paul, I'd invite you in any areas you want to add to in terms of my comments.
Paul I didn't buy you in any areas you want to add to in terms of my comments.
Nothing to add Gary Thank you.
Speaker 5: Got it. My second question is regarding kind of Medicare supplements within the health margin. As we think about the enrollment period results in 2021, how should we think about the top line exit to 2022?
Got it.
My second question is.
Regarding kind of Medicare supplement within the health margin, how should we think about the the enrollment periods results in 2021, how should we think about the top line expectation for 2022.
Okay.
Speaker 3: So I'm pretty referring to men suffering a matter of that advantage that advantage
So humphrey you're referring to men suffering.
And that advantage and that advantage.
That's helpful.
Speaker 3: Um, um, well as you well as you know the as you know the Much of the sales occurs in the context of the aap The the management self-care ourselves there as well. I wouldn't expect
Well.
As you know the as you know.
Much of the sales or sales in the current accident year.
Do you take any med advantage is Microsoft there to make sure because there are sales throughout our desire as well I wouldn't expect.
Speaker 3: You know, other than the context of sort of the secular decline in our next upsell, they wouldn't expect. Any variation in the seasonality that you see in the historical results.
Other than in a context of sort of the secular decline in the med sub sales I wouldn't expect it.
Any variation in seasonality that you'll see in our strategy.
Speaker 5: But just thinking about the lower sales in the quarter, just thinking about on a full year basis running through into 2022, should we see a little bit more downward pressure on the top line for that business.
But just thinking about the the lower sales in the quarter.
Just thinking about from a full year basis running through into 2022 should we see a little bit more downward pressure on the top line for that business.
Speaker 3: We do expect that there will continue to be a downward pressure in our Med Sub sales, but perhaps you can pick up here, Gary. We really think about the Medicare business broadly across Medicare and Medicare Sub and Medicare Advantage. We also, as Gary mentioned, are introducing a new product in the Med Sub space in 2022, which will help improve those dynamics. Gary, would you...
We do expect that there will continue to be.
The downward pressure on our med sup sales, but.
Perhaps you can.
You can pick up here, Gary we really think about the Medicare business broadly across Medicare and.
Certain Medicare Sup and Medicare advantage.
We also as Gary mentioned are introducing a new product in the med sub space.
2022.
Which will help improve those dynamics.
Gary would you would you add anything.
Speaker 6: Yeah, Paul, I apologize. I lost audio there just for a minute or two. Oh, you did? Okay. Yeah, sorry. Could you just recap the question? Is it just about our general outlook on Medicare? Was that the question?
Yes, Paul I apologize I lost audio there just for a minute or two okay.
Could you just recap the question is it just about our general outlook on Medicare was that the question.
Speaker 3: Yeah, well, the question was general outlook on Medicare supplement sales, but I was trying to put that in the broader context of how we think about Medicare. Yeah, actually less about the sales, but just more the premium growth within, like, kind of running through the income statements for 20.
Well the question was general outlook on Medicare supplement sales, but I was trying to put that in the broader context of how we think about Medicare.
Yeah, actually Atlanta boat sales, but just more to the premium growth within like kind of running through the income statement for 2022.
Speaker 3: Yeah, and there again, Humphrey, the dynamics with how that flows through doesn't change. So you have to...
And there again Humphrey.
The dynamics of how that flows through it doesn't change.
So you you have to.
Speaker 3: model what you think that the, you know, the
Model, what you think that the.
The total sales decline is.
Speaker 3: Total sales decline is, you know, if that's the expectation again, we do think that directionally that's a reasonable expectation. Although we're expecting that the new Medicare supplement product that we're introducing at. 22 will change that dynamic a bit and again, as we think about Medicare as a door opener for us. We think about that across both Med Shop and that advantage.
Cuts without the expectation again, we do think that Directionally, that's a reasonable expectation.
Although were.
We're expecting that the new Medicare supplement products that we're introducing in 'twenty, two will change that dynamic a bit.
And again as we think about Medicare as a door opener for us.
We think about that across both med sub band Med advantage.
Understood. Thank you.
Yeah.
Speaker 1: Again, if you would like to ask a question, press star 1 on your telephone. To resolve your question, press the pound.
Again, if you would like to ask a question press star one on your telephone to enjoy your question press the pound key.
Speaker 1: Your last question comes from the line of Colin Johnson from B. Riley Securities. Your line is now open.
And your last question comes from the line of Colin Johnston from B Riley Securities. Your line is now open.
Speaker 6: Hey, good morning. Thanks for taking my questions. Just respect to the tightness of the labor market. And we touched a bit on the field agent referral program. But you also hear anecdotally about salary increases or one time bonuses or other kind of benefits that are being offered as a means to retain talent. So I'm just wondering if there's any other specific programs that CNA is either CNO has either enacted or will enact to kind of help with agent count in addition to that referral program.
Hey, good morning, Thanks for taking my questions.
<unk> respect to the tightness of the labor market and we touched a bit on the field agent Pro program, but you're also hearing anecdotally that salary increases or onetime bonuses or other kind of benefits that are being offered as a means to retain talent. So I'm. Just wondering if there's any other specific programs that CNA is either GNL.
GNL is either enacted or will enact.
To kind of help with agent Count in addition to that referral program.
Speaker 6: Hi Colin, this is Gary. Thanks for the question. I'll maybe start out by taking a crack at this. So I think, first of all,
Hi, Colin this is Gary Thanks for the question I'll, maybe start off by taking a crack at this so I think first of all.
Speaker 3: Like every other business in America, we're facing labor challenges. There's no question about that. And we've made various adjustments where appropriate.
Like every other business in America, we're facing labor challenges. There's no question about that and we've made various adjustments where appropriate.
Speaker 6: The one thing I will say, we watched this pretty carefully, and I recently saw an exhibit from our head of HR about our employee retention.
The one thing I will say.
We watched this pretty carefully and I recently saw an exhibit from our head of HR about our employee retention.
Speaker 3: And in general, I've been extremely pleased. I think that our employees really gave us some credit for the work we did throughout some of the social justice movement and the COVID crises. And if you remember back in 2020, when COVID was still happening, we gave our employees a guarantee that no jobs would be lost.
And in general I've been extremely pleased.
I think that our employees really gave us some credit for the work we did throughout some of the social Justice movement and the Covid crisis.
And if you'll remember back in 2020, when Covid was still happening we gave our employees a guarantee that no jobs will be lost.
Speaker 3: So we did a number of things, we made a number of improvements, and I think our employees have responded in kind with their hard work and their dedication. So in the aggregate, I'm very pleased with where we are. That said, like everybody else, we're struggling to bring new talent in. There's no question about that. It's a very tight market. And so I would share a few observations in particular about the agents. The first thing I want to talk about is the
So we did a number of things we made a number of improvements and I think our employees have responded in kind with their hard work and their dedication. So in the aggregate I am very pleased with where we are.
Said like everybody else, we're struggling to bring new talent in there is no question about that it's a very tight market and so I would just share a few observations in particular about the agents.
The first thing I want to emphasize.
Speaker 3: is that remember that in 2017 we changed our strategy.
Is that remember that in 2017, we changed our strategy.
Speaker 6: we intentionally said we're going to de-emphasize raw recruiting and just trying to bring in more and more agents and instead focus on productivity and veteran agents. Again, we started that process in 2017 and I think you've seen some of the results of that in the subsequent years where our productivity has indeed increased, where our retention of veteran agents has indeed increased.
We intentionally said, we're going to deemphasize raw recruiting and just trying to bring in more and more agents and instead focus on productivity and veteran agents again, we started that process in 2017, and I think you've seen some of the results of that in the subsequent years, where our productivity has indeed increase where our retention.
Our veteran agents has indeed increased.
Speaker 6: So we've seen pretty significant retention gains as much as two or three times from these targeted recruiting strategies and significant productivity gains. Those two things take a fair bit of the pressure off new recruiting. As David stated differently, we're not as reliant on new recruiting as we were five years ago.
So we've seen pretty significant retention gains as much as two or three times.
From these.
Targeted recruiting strategies and significant productivity gains those two things take a fair bit of the pressure off new recruiting stated differently, we're not as reliant on new recruiting as we were five years ago, and here's where I wanted to I guess give.
Speaker 6: And here's where I want to, I guess, give a careful message. Do I want more agents?
A careful message.
More agents, yes am I as dependent on that as we were say five years ago No we're not.
Speaker 6: Am I as dependent on that as we were, say, five years ago? No, we're not, because of the veteran agent productivity and retention.
Because of the veteran agents.
Productivity and recruiting retention gains.
Speaker 6: Now, in terms of where we see the agent force going over the next year, the feedback I get from our experts in the field, and remember some of these folks have been doing this for decades.
Now in terms of where we see the agent force going over the next year the feedback I get from our experts in the field and remember some of these folks have been doing this for decades, the feedback I get from our experts out in the field as we really think we are at or near a bottom in terms of being able to recruit new agents, we expect that.
Speaker 3: The feedback I get from our experts out in the field is we really think we're at or near a bottom in terms of being able to recruit new agents. We expect that bottom to happen sometime in 2022 and we expect to be able to once again start sequentially growing agent counts in 2022. I don't have hard data to back that up yet. It's only February so it's
Bottom to happen sometime in 'twenty, two and we expect to be able to once again start sequentially growing agent counts in 2022, I don't have all I want to emphasize I don't have hard data to back that up yet it's only February so it feels a little early but what I'm really relying on our experts some of whom who have decades of experience doing this.
Speaker 7: It feels a little early, but I'm really relying on our experts, some of whom have decades of experience doing it.
Speaker 7: And again, I want to emphasize we're still most focused on productivity and retention. We face the same labor pressures as everybody else, but our points of focus may be slightly different.
And again I want to emphasize we're still most focused on productivity and retention.
We face the same labor pressures as everybody else, but our points of focus may be slightly different.
Colin did I answer your question.
Speaker 6: Yes, that was really helpful. Thank you. And then just one more question. So could you talk maybe a little more about the integration between direct consumer and field agents and just kind of what that looks like?
Yes that was really helpful. Thank you and then just one more question. So could you talk maybe a little more about the integration between direct to consumer and field agents and just kind of what that looks like.
Speaker 7: Yeah, I'm glad you asked about that. Frankly.
Yeah, I'm glad you asked about that.
Frankly.
Speaker 7: That's been one of the most significant ingredients in our ability to successfully navigate COVID. You've seen that most of our growth metrics have continued to rise and in most cases exceed pre-pandemic levels. One of the largest drivers of that has been this combination.
That's been one of the most significant ingredients and our ability to successfully navigate COVID-19 .
<unk> seen that most of our growth metrics.
We have continued to rise and in most cases exceed pre pandemic levels. One of the largest drivers of that has been this combination and just as a quick reminder, remember that we brought together our direct to consumer and agent driven consumer business as we brought those together January of 2020 right before Covid hit so our timing was just pure luck.
Speaker 7: And just as a quick reminder, remember that we brought together our direct to consumer and agent-driven consumer businesses. We brought those together in January of 2020, right before COVID hit. So our timing was just pure luck. I wish I could take some credit for that, but it was just pure luck.
I wish I could take some credit for that because it was just pure luck.
Speaker 7: What we've been able to do is really learn quite a bit.
And.
What we've been able to do is really learn quite a bit and improve in terms of how these leads come in on a direct to consumer basis, and how we use those in both directions. We have certain leads that come into our agents, where the consumer is used as a direct to consumer platform and vice versa, but the combination of those two things has really made a dip.
Speaker 7: and improve in terms of how these leads come in on a direct to consumer basis and how we use those in both directions. We have certain leads that come into our agents.
Speaker 7: where the consumer uses a direct-to-consumer platform and vice versa. But the combination of those two things has really made a difference, and that's what's given us the confidence to invest in MyHealthPolicy.com because we believe that the things we learned in life, in the life insurance business of going between direct-to-consumer and agent-driven businesses, we can apply some of those same learnings to the health business.
And that's what's given us the confidence to invest in my health policy Dot com, because we believe that the things we learned in life and the life insurance business.
Of going between direct to consumer and agent driven business as we can apply some of those same learnings to the health business. So we expect to be able to bring that type of learning there as well I really think that our sales numbers would be very very different if we hadn't done that in early 2020, I think that's been a significant differentiator for us and I think we're just scratching the surface.
Speaker 7: So we expect to be able to bring that type of learning there as well. I really think that our sales numbers would be very, very different if we hadn't done that in early 2020. I think that's been a significant differentiator for us. And I think we're just scratching the—
Speaker 7: I think that the other thing COVID did that doesn't maybe get a lot of attention, I think there are certain consumer behaviors and consumer comfort levels on interacting virtually that have changed permanently. And we feel like we're very well positioned to be able to capitalize on those.
I think that the other thing Covid did that doesn't maybe get a lot of attention I think there are certain consumer behaviors and consumer comfort levels on interacting virtually that have changed permanently and we feel like we're very well positioned to be able to capitalize on those.
Okay.
Got it. Thanks, that's helpful. Those are all my questions.
Speaker 1: Yo, last question comes from the line up.
Yeah.
Question comes from the line of.
Yeah.
Speaker 1: If there are no further questions, I'll hand the call back to the company. Thank you.
There are no further questions I'll hand, the call back to the company. Thank you.
Operator, I think there is one more question.
Speaker 1: Your last question comes from the line of Rafael Quintez from Facset. Year 9 is now open.
Your last question comes from the line of Rafael Qantas from fact, Seth Your line is now okay.
Speaker 3: Hey, this is actually Ryan Krueger from KBW. Thanks for getting me in. I had a, I guess, one question on advertising spend in the life business. It was up a fair amount. 2021, but obviously led to good sales results. How are you thinking about. Add spend and the opportunity there as we go into 2022.
Hey, this is actually Ryan Krueger from K B W. Thanks for getting me in.
I had a just.
I guess one question on advertising spend in the life business. It was up a fair amount in 2021.
Led to good sales results, how how are you thinking about AD spend and the opportunity there as we go into 2022.
Speaker 3: Good morning, Ryan. So, you know, as we've discussed in the past, our volume of ad spend is really sort of dependent on the opportunity set at a price that makes sense for us. And we manage that quite tightly just looking at the ad spend relative to the amount of NAP that we think we can generate with it.
Good morning, Ryan.
So you know as we've discussed in the past.
Our volume of AD spend is really sort of dependent on.
The opportunity set.
At a price that makes sense.
For us and we manage that quite tightly just looking at the AD spend relative to the the amount of nape, we think we can generate with it.
Speaker 3: So obviously that moved up in 2021 versus prior years, and that was largely a function of sort of the demand in direct to consumer. So we were opportunistic there. We expect that that will continue. So as we look into 2022, I think it's reasonable for you to expect that the 21 levels will persist.
So obviously that that moved up.
In 2021 versus prior years and that was largely a function of sort of the.
The demand.
And in our direct to consumer.
So we were opportunistic there we expect that that will continue.
As we look into 2022.
I think it's reasonable to you for you to expect that the 21 levels will persist.
Speaker 3: you know, at least flat, maybe up, and again, that will depend on how things evolve and the dynamics that I just described.
You know at least flat.
Maybe up and again that will depend on how things evolve in and the dynamics that I just described.
Gary would you add anything.
Speaker 7: No, well actually I think the only thing I would just emphasize, and you mentioned it Paul, but I'd emphasize it again, we watch this really carefully. We have proprietary internal metrics where we watch the marketing cost against the NAP and when we can buy the ads at the right price that delivers the yield we want, we buy more.
No well actually I think the only thing I would just emphasize on you mentioned to Paul but I would emphasize it again, we watch this really carefully.
We have proprietary internal metrics, where we watched the marketing cost against an app and when we can buy the ads at the right price that delivers the yields we want and we buy more.
Speaker 7: And when we don't get the yield we want, we buy less. And that strategy has served us well, and I think we'll continue to use it. One final comment I'd make, given what's coming with the 2022 elections and so on, I don't know how many opportunities there'll be from a pure cost standpoint to buy advertising at the levels that we really like. But if they're there, we'll do it.
And when we don't get the yield we want we buy less and that strategy has served us well and I think we'll continue to use it one final comment I would make given what's coming with the 2022 elections and so on I don't know how many opportunities will be from a pure cost standpoint to buy advertising at the levels that we really like.
But if they're there we'll do it.
Thanks, and then.
Do you expect.
Speaker 3: Do you expect much of a sales benefit from the AMBEST upgrade? I don't know whether it be in work site or areas where you're distributing more through the third party distributor.
Do you expect much of a sale.
<unk> benefit from the a M best upgrade.
I don't know whether it be in worksite or areas, where you where you are distributing.
The third party distributor.
I think conventional wisdom is held that on our consumer business as long as the a M. Best rating is above the plus consumers are generally satisfied on the employer businesses. I think you can need to be at an a minus or higher.
Speaker 7: I think conventional wisdom has held that on our consumer business, as long as the AM best rating is above B+, consumers are generally satisfied. On the employer businesses, I think you need to be at an A-.
Speaker 7: So, stated differently, I believe that the AM best rating we had was not previously a limiting factor.
So stated differently I believe that the a M. Best rating, we had was not previously a limiting factor.
Speaker 7: So I doubt it'll be a huge benefit. There may be some employers out there that have internal risk management guidelines that won't allow them to work with a carrier who has less than an A rating. So on the margin, there might be a few extra accounts here and there, but I wouldn't expect a significant lift.
So I doubt it'll be a huge benefit there may be some employers out there that have internal risk management guidelines that won't allow them to work with a carrier who has less than an a rating. So on the margin there might be a few extra accounts here and there, but I wouldn't expect a significant lift.
Speaker 7: by virtue of that. We've played in a different space for quite some time and I think our clients generally speaking are not as rating sensitive.
By virtue of that we've played in a different space for quite some time and I think our clients generally speaking are not as rating sensitive.
Understood. Thank you.
Speaker 1: There are no questions at this time. I'll hand the call back to the company.
There are no question at this time I'll hand, the call back to the company. Thank you.
Speaker 2: Thanks, operator, and thanks everyone for joining us. And we look forward to speaking with you again.
Thanks, operator, and thanks, everyone for joining us and we look forward to speaking with you again soon.
Okay.
Speaker 1: This concludes today's conference call. Thank you for participating. You may now disconnect.
This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker 8: The.
Yeah.
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Speaker 8: And down.
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