Q1 2022 CNO Financial Group Inc Earnings Call
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Good day, and thank you for standing by and welcome to the <unk> Financial Group first quarter 2022 earnings results. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session. Jack a question. During the session you will need to press star one on your <unk>.
Telephone 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, Jennifer Childe, Vice President of Investor Relations and sustainability. Please go ahead.
Thank you operator.
Everyone and thank you for joining us on C. N O financial group's first quarter 2022 earnings Conference call. Today's presentation will include remarks from Gary <unk>, Chief Executive Officer, and Paul Mcdonough, Chief Financial Officer. Following the presentation. We will also have other business leaders available for the Q&A.
Period.
During this conference call, we will be referring to information contained in Yesterdays press release, you can obtain the release by visiting the media section of our web site at C. N O H dot com.
Presentation is also available in the investors section of our website and was filed in a form 8-K yesterday, we expect to file our Form 10-Q and posted on our website on or before May six.
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 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.
Throughout the presentations, we will be making performance comparisons and unless otherwise specified any comparisons made will be referring to changes between first quarter 2022 and first quarter 2021, and with that I'll turn the call over to Gary.
Thank you Jennifer.
Morning, everyone and thank you for joining us.
Before we get started I would be remiss, if I didn't address the ongoing conflict in Ukraine.
Austin prayers continue to be with the people of Ukraine and everyone impacted by this vessel.
Turning to slide four in our first quarter performance.
I am pleased with our continued progress advancing our strategic initiatives.
We reported solid sales growth, particularly within our direct to consumer business and generated significant improvements in agent productivity.
Our long standing strategy to focus on agent productivity helped to offset the continued recruiting headwinds due to the tight labor market.
In addition, we experienced increased recruiting traction in the latter portion of the quarter, which is carried over into <unk>.
Operating earnings per share, excluding significant items were down 17 cents or 29% compared to the prior peak.
Normalizing for various factors, which Paul will discuss in a few moments our margins and earnings were quite healthy.
We returned significant capital to shareholders in the quarter, reducing our share count by another 11%, while ending the quarter at targeted capital levels.
Turning to slide five and our growth scorecard.
Four of our five growth scorecard metrics were up compared to the first quarter of 2021, and most production metrics continue to exceed pre pandemic levels.
Total nap was up 2% for the quarter.
Sales momentum remained strong up 5% over the prior year.
This was offset somewhat by lower health sales, which were down 3% for the quarter, reflecting a continuing shift by consumers away from Medicare supplement towards Medicare advantage products.
Total collected life and health premiums were down 2% for the quarter.
We are providing additional detail on this slide to give insight into the distinction within our lines of business.
We offer single premium whole life policies that are often purchased for state planning purposes and are paid as a lump sum.
While these policies typically comprise around 2% of lifestyle they tend to be larger so even a small move can cause volatility in our reported collected premiums.
We saw a spike in the sales of these policies in the first quarter of 2021 as compared to the first quarter of 2022.
Excluding single premium policies traditional life collected premiums were up three 5%.
Annuity collected premiums were up 13% for the quarter, our sixth consecutive increase.
Client assets and brokerage and advisory grew 16% year over year to $2 8 billion.
Fee revenue was up 25% for the quarter to $40 million, reflecting significant growth in our distribution of third party products.
Expansion of our broker dealer and registered investment advisor.
And continued growth in our Worksite fee business.
Turning to our consumer division on slide six.
Life sales were up 3% for the quarter driven by continued strong direct to consumer sales direct to consumer sales were up 16% on top of the 38% growth in direct to consumer sale that was generated in the year ago period.
This channel continues to benefit from investments in opportunistic advertising spend.
Alf directed applications direct mail campaigns and enhanced distribution through third party partners.
Life sales generated by our exclusive field agents were down 16% as a tight labor market has slowed recruitment of first year agents, who tend to sell a higher proportion of life policies.
We expect our agent salt life insurance to rebound as agent recruiting levels normalize.
Health sales were down 1% with strong supplemental health and long term care sales offset by continued weakness in Medicare supplement.
As discussed in previous quarters, our market is experiencing a secular shift away from Medicare supplement and towards Medicare advantage.
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.
As a reminder, later this year, we plan to launch a new Medicare supplement product that aligns well with current consumer preferences.
Third party Medicare advantage sales were up 14% in the first quarter, which follows on the heels of our fourth quarter increase of 20%.
We attribute the strength in our third party Medicare advantage sales 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 local bankers life agents.
Annuity collected premiums were up 13% compared to the prior year and the average annuity policy size rose 8%.
Client assets in brokerage and advisory grew 16% year over year to $2 $8 billion in the first quarter driven by an increase in new accounts.
Combined with our annuity account values, we now manage more than $13 billion in assets for our clients.
This is fundamentally shifted the relationship we have with our customer base. Unlike some insurance products, which can be transactional in nature investment products, typically create deeper and longer lasting customer relationships.
In recent years, we've proactively shifted our agent recruiting strategy to focus more heavily on targeted recruiting agent approaches.
And strategies to boost the productivity levels of our existing agent base, we intentionally recruit fewer new agents emphasizing quality over quantity. Therefore, the new agents that we do a point or more likely to succeed and stay with us over time.
Agent productivity remains strong and is up in all cohorts versus historical levels.
In addition veteran agent retention is stable this is especially important as these agents typically generate higher premiums per policy.
Of course, we always need to recruit new agents the tight labor market continued to impact us during the first quarter and our total producing agent count declined 11% as we recruited fewer first year agents.
The recruiting environment improved steadily over the course of the quarter and that momentum has carried over into April .
We are cautiously optimistic that our recruiting challenges of Bob although the pace of improvement remains unclear.
Turning to slide seven in our Worksite Division performance.
We continued to see steady improvement in this business the size of prolonged despite the prolonged COVID-19 disruption worksite sales were up 8% in the first quarter, reflecting both the expansion of our vertical sales strategy and our recent focus on dormant accounts.
In the first quarter, we rolled out our new hybrid enrollment tool that will enable our career agents to reach employees wherever they are.
It provides a appointment setting functionality to allow employees to schedule either face to face or video enrollment sessions in the language of their choice.
And then facilitates the video sessions. It also offers communication campaigns that are designed to increase employee engagement and participation.
Yes.
Retention of our existing employer customers remained strong and employee persistency within these employer groups continues to be stable.
We expect the pace of Worksite recovery to continue to improve in the coming quarters as Covid disruptions subside.
Our producing agent count was down 14% year over year, largely as a result of ongoing labor market conditions.
Similar to our consumer division, we saw steadily improving agent recruiting over the course of the quarter, particularly from our field agent, referring referral program.
We have also seen significantly higher productivity across all age groups, including first year agents.
That's been the case in recent quarters retention and productivity levels among our veteran agents remains stable.
The integration of our fee based businesses is progressing well and we continue to generate cross sales success.
Fee revenue within Worksite was up nearly 40% in the quarter of which 10% was due to organic growth.
The average client size for our benefit administration business grew 10%.
We continue to see healthy healthy growth in our per employee per month accounts.
Turning to slide eight.
We returned $116 million to shareholders in the first 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, while share repurchases from our critical form a critical component of our strategy organic and inorganic investments also play an important role.
And with that I'll turn it over to Paul.
Thanks, Gary and good morning, everyone.
Turning to the financial highlights on slide nine we generated operating earnings per share of <unk> 42 in the quarter, which is down 29% year over year, excluding significant items in both periods.
Results for the quarter benefited from solid underlying insurance margin performance and disciplined expense and capital management.
This was more than offset by four things number one reduced variable investment results, which were down $15 million year over year.
Keep in mind that yield on alternatives that elevated the last six quarters and in the first quarter of this year a return to a level that we think is more in line with a long term run rate expectation.
Number two largely non economic impacts to our annuity margin.
From recent market volatility.
Which impacted our annuities by $10 million.
Third moderating net favorable COVID-19 related impacts of $6 million.
And fourth higher non deferrable advertising expense of $6 million, which generates profitable life insurance sales.
As the expenses not deferrable pressures current period earnings.
Fee income was up 36% year over year, largely reflecting margin improvement from the sale of third party Medicare advantage policies.
The sum of expenses allocated to products and not allocated to products.
Excluding significant items was up modestly versus the first quarter of 2021 consistent with the outlook we provided back in February .
This reflects operating efficiency, coupled with continued targeted growth investments.
Our effective tax rate was up 240 basis points to 24, 8% driven by a change in Illinois state income taxes.
We deployed $100 million of excess capital on share repurchases, reducing weighted average shares outstanding by 11%.
For the 12 months ending March 31 2022.
Operating return on equity was 11, 2% or 10, 7% excluding significant items.
Turning to slide 10.
Insurance product margin, excluding significant items was down $20 million or 10% in the first quarter as compared to the prior year period.
Adjusting for the market impacts on our FIA margins COVID-19 impacts across all of our products and the increase in non deferred advertising expense as referenced on the slide total margin was up about $2 million.
<unk> the stable underlying dynamics of the business.
As usual there were some puts and takes byproduct line.
Adjusting for these items, our annuity margins down about $2 million.
Reflecting a more pronounced decline in the yield on the invested assets allocated to these products as compared to our other product lines.
Due to greater turnover and the assets. We expect this will moderate over time.
Our health margin adjusting for these items up about $8 million.
$5 million of this is on the LTC block, we do not believe that this is a real impact on the underlying but rather due to a refinement in our method for estimating the COVID-19 impact on LTC.
The remainder is due to growth in sub health and the benefit of rate increases on med sup.
Finally, our life margin again adjusting for these items was down about $4 million, reflecting some less favorable persistency in the current period, but within normal variation of experience.
Turning to slide 11.
Investment income allocated to products was essentially flat as the impact from growth in the net liabilities and related assets was offset by a decline in yield.
Our new money rate of 373% for the quarter was up six basis points sequentially.
Reflecting higher yields and our continued up in quality bias.
The rate was higher later in the quarter and we would expect it to be higher in the second quarter based on prevailing market conditions.
Investment income not allocated products, which is where the variable components of investment income flow through.
Decreased $15 million or 34%.
Reflecting still solid but moderated performance within our alternative investment portfolio.
Our new investments comprised $940 million of assets with an average rating of AA minus and an average duration of 10 three years.
Our new investments are summarized in more detail on slides 23, and 24 of the earnings presentation.
Turning to slide 12 at quarter end, our invested assets totaled $27 billion.
Up 2% year over year.
Approximately 95% of our fixed maturity portfolio at quarter end was investment grade rated with an average rating of single a reflecting our up in quality bias.
The allocation to single a rated or higher securities is up 310 basis points year over year.
While the Triple B allocation is down 250 basis points year over year, and 10 basis points sequentially.
The remaining 5% of the fixed income portfolio at year end.
Rated below investment grade, which is down 60 basis points year over year.
Turning to slide 13 free cash flow conversion was strong in the quarter, though the absolute level of dividends out of the operating companies in the quarter declined year over year, driven largely by the impact of market volatility on stat capital and incremental capital absorbed by the new <unk> program.
Turning to slide 14 at.
At quarter end, our consolidated RBC ratio was 365%.
10 points below our target RBC of 375%.
Which equates to approximately $50 million of capital.
Our holding company liquidity was $192 million, which is $42 million above our $150 million minimum holdco liquidity target taken.
Taken together, we were essentially in line with our target capital levels.
Over time as markets stabilize we will look to manage back to the individual targets, 375% consolidated RBC and a $150 million holdco liquidity.
Turning to slide 15.
In most respects our outlook for the year has not changed much since the outlook we shared in February .
We still expect continued positive sales momentum and continued strong free cash flow conversion relative to our peer group recognizing cash flow may be pressured in a given quarter as we absorb <unk> respond to adverse market conditions.
Our directional earnings expectations with respect to Covid impacts investment income fee income and expenses have not changed materially.
On the other hand, we did not anticipate at the beginning of the year the market volatility that adversely impacted our results in the first quarter.
Specifically equity markets down equity market volatility and interest rates up.
These conditions persist as they have second quarter to date those impacts, but also persist if they reversed the impacts would also reverse.
Interest rates of course are good for our business in the long run as higher new money rates would over time improve the overall yield on the portfolio reversing the adverse trend over the last several years.
Another change relative to our circumstances at the beginning of the year is that we are now at target capital and Holdco liquidity levels taken together as opposed to managing closer to those levels, which reduces our share repurchase capacity going forward.
Finally, the increase in our effective tax rate. This quarter was driven by an Illinois state income tax law that we expect will significantly limit our use of Nols in Illinois in 2022, and 2023, triggering retaliatory retaliatory taxes and other states.
We are working on strategies to mitigate the impact but for the time being you should expect a higher rate to persist.
Before I turn it back to Gary turning now to slide 16, I'd like to provide a brief update on where we stand with our progress in adopting ASC 934 also known as the long duration targeted improvements standard.
First as a reminder of the accounting change will have no impact on statutory accounting or the capital required by regulators no impact on cash flows and no impact on lifetime GAAP profits, although it does modify when the profits will emerge over time.
We expect the most significant impact on the January one 2021 transition date to meet 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.
Based upon the modified retrospective transition method. We currently estimate the new discount rate impact is likely to result in a decrease to OCI in the range of approximately one eight to $2 2 billion.
Resulting in a balanced approximating zero at the transition date.
We also estimate that the transition date impact on retained earnings will be a decrease in the range of approximately $100 million to $200 million, primarily due to certain cohorts of older long term care policies, having negative margins. The overall margin on our long term care block continues to be part.
Positive.
In addition, our estimate of the transition date impact on retained earnings includes a small impact of carrying our recently issued lifetime income riders uncertainty fixed index annuities at fair value.
We have made significant progress toward the January one 2023 adoption of the standard.
And expect to be able to begin to provide more quantitative impacts in the second or third quarter.
And with that I'll turn it back over to Gary.
Thanks, Paul.
We are pleased with our performance in the quarter and the progress we've made against our strategic priorities.
While the global environment remains uncertain the.
Earnings and cash flow generating power of the company remained robust.
We remain confident in our long term strategy and believe <unk> is well positioned to deliver significant value to all of our stakeholders in the years ahead.
We thank you for your support of and interest in <unk> Financial Group, We will now open it up for questions operator.
Thank you Sir.
A reminder to ask a question you will need to press star one on your telephone to enjoy.
On your question Christa Pankey, please standby, we compile the Q&A roster.
Your first question comes from the line of Ryan Krueger from <unk>. Your line is open.
Hi, Thanks. Good morning. My first question was could you go through a little bit more detail on some of the key drivers.
That reduced the RBC ratio in the quarter.
Sure Good morning, Ryan as Paul So just to provide some context, we go through a process every quarter sort of mid quarter, where we project out where we expect to end the quarter and then we we plan on dividends out of the outcome is solving for the target $3 75.
In this instance, mid quarter, we actually reduced our dividends out of the <unk> by about $35 million.
In the context of <unk>.
And current conditions in hindsight, we should have reduced them by another $50 million in order to.
And in the quarter at $3 75 versus $3 65.
Were really three primary drivers.
The actuals versus what we projected mid quarter.
The first was the fact that the S&P 500 index was down about two points in the last couple of days of the quarter. So that increased the impact down equities have on.
The dynamic between the fixed index annuities carbon reserves and the <unk>.
Fair market value call options.
Markets equity markets are down significantly the value of the assets decreases more than.
He was a liability is using the carbon reserve methodology. So that was the first thing the second thing was that.
Sure.
Life.
Covid mortality was a bit more elevated than we'd anticipated mid quarter.
And then the third thing.
It's really a very unique circumstance we have six.
Russian energy company bonds with a par value of about $24 million.
And we mark those to market at the end of the quarter.
With an.
And adverse mark of $14 million pre tax.
Those bonds were also downgraded to NII of six.
Which attracts as you know a much higher capital charge the combination of the mark to market and the downgrade had about a four point impact on RBC.
Hindsight, we should have seen that coming.
At first blush, we thought $24 million par value wouldn't have much of an impact it's really immaterial in the context of the overall investment portfolio.
But you know the combination again, if the mark and the downgrade had a meaningful impact on the margin to stat capital and RBC.
Thank you that was really helpful. And then the follow up is.
I guess, how are you thinking about share repurchase capacity going forward do you feel like.
I guess can you would you expect to return all free cash flow generation from here between buybacks and dividends or would you hold back some to build back up the RBC ratio first.
So with respect to capacity certainly the capacity is diminished given that we're now.
At target capital.
Without we're not sitting on excess capital.
Not holding excess capital as we have been for the last several quarters.
That by itself reduces capacity.
Yeah, the absolute levels of earnings and free cash flow as we've indicated in their outlooks for the last several quarters and as much as we saw in the first quarter are moderating given the moderating levels of net favorable COVID-19 impacts.
And alternative investment returns and that also reduces earnings and free cash flow and therefore share repurchase capacity.
Beyond that Ryan, we Havent really changed how we think about deploying.
Free cash flow on the margin we deployed on share repurchase, but we also consider alternative uses of that capital.
Got it thank you.
Your next question comes from the line of Erik Bass from Autonomous Research. Your line is open.
Hi, Thank you.
First to follow up on Ryans.
Questions just as we think about free cash flow going forward I think it was around $60 million this quarter and recognizing there can be volatility do you view that as a reasonable run rate to think about going forward.
Yeah.
Yes, good morning, Erik I don't know if it's a reasonable run rates I mean, as you know theres. So many moving pieces that determined free cash flow.
At the operating company level on a statutory basis.
Intercompany cash flows between the Opco and the and the.
Holdco.
So I no I.
I wouldn't want to represent anything as sort of a.
Our fixed run rate.
Just by its very nature, a fair amount of volatility.
Got it.
And then I appreciate the <unk> disclosure that you gave.
I was just wondering if you have any sensitivity you can provide on how under L. DTI changes in interest rates will affect the carrying value of the liability relative to the movements in your investment portfolio. I guess, if we were to roll forward to the end of 122 OCI balances come down a lot from where it was at the transition date due to higher rates.
But I imagine the liability value will also have been reduced.
Any sense of what those impacts are offset or would you expect the OCI se OCI balance to be negative or positive at this point.
Yes, so we don't we will.
Have a much better sense for the sensitivity as we roll forward in the balance sheet from one 120.
'twenty one.
Through to the end of.
Of this year.
That remains a work in progress I would say conceptually directionally that I would expect our Aoc balance will be around zero with some reasonable range.
Plus or minus.
As you know, while the assets and liabilities will move.
More consistently certainly under LD Ti they will not move in tandem all.
All the time for really two main reasons number one not all blocks are part of <unk> and number two the liability discount rate.
Prescribed under El DTI does not align perfectly with the specific asset.
Credit spread qualities of our portfolio.
Got it thank you and sorry, if I could sneak in just one more on the tax rate I think you said to expect it to sustain the higher rate in 'twenty, two and 'twenty. Three just wondering is this a cash.
Does it have an impact on cash taxes as well or is it just the GAAP impact.
Cash taxes I mean, the driver is the Delanoy declared that.
Companies could not use Illinois Nols in 'twenty, one two and three we actually had tax credits that offset that in 'twenty one.
We're working on strategies that were mitigated in 'twenty two 'twenty three.
For the time being I think you should assume that the effective tax rate that is provided in the outlook.
As to what will level hole.
Some potential upside if we identify strategies that are effective.
Got it thank you.
Your next question comes from the line of Dan Bergman from Jefferies. Your line is open.
Thanks, Good morning, I guess first I just wanted to see if you could give a little more color on the trends in <unk>.
Life insurance persistency, which is down like it sounded like declined somewhat in the first quarter should we think of that as mostly a normalization from elevated persistency in recent periods due to Covid and then just are you seeing any pattern in persistency concentrated in any particular vintages or channels of policies sold direct versus agency.
Good morning, Dan, Yes, we think of it mostly as a normalization it was a bit elevated in the prior period.
It's a bit lower.
Perhaps the long term trend in the current period, but within a normal range of variation.
So I think it's sort of stay tuned as to how how that evolves, but our expectation is that it.
<unk> remains in a.
Our normal range based on our historical experience.
Great. Thanks, and then separately I just wanted to see if there's any more color you can provide around the acquisition of the minority interest in our Rialto capital that you announced last week any more detail around the strategic rationale how much the portfolio you'll be investing.
With them and the amount you paid or any impact on your capital levels would be very helpful.
Sure. So we've got Eric Johnson here with us and he can provide more color but.
In terms of.
The amount we paid was around $60 million.
And we're intending to deploy sort of 400 million or so.
The various strategies.
So Eric.
I'll defer to you to provide some additional color.
Yeah. Good morning, and then Paul then everybody.
Our Rialto capital I think is a really good opportunity for us as a company to take a very targeted level of of risks, while increasing our overtime.
And then our all weather.
Our exposure to commercial real estate, which is which is underway and has been for some time and it's also a good chance to invest through some bespoke structures that will have capital efficiency and generate good returns relative to capital required Rialto has about $13 billion of assets under management in a very very.
Strong track record over a long period of time.
They're well regarded in the marketplace. There are a good partner for us.
Should generate pretty heavy cash income Paul mentioned, the $450 million that we think that we are going to allocate to the Rialto strategy.
North of half of that will be in or probably two thirds of it will be in capital efficient strategies.
Strategies that will be diversified portfolios of floating and fixed rate loans that should produce a nice steady cash income stream.
And.
In regard to our minority interest in the company, we're happy to have it it's a strong cash generating vehicle.
And that should generate returns that are pro cyclical and.
We think that our interest has all the adequate corporate governance.
Protections such that it should be I think in the long term a good investment.
For the company and a lot of good intellectual capital opportunities as well so very very excited about it and look forward to with the passage of time, it really doing good things for us.
Got it thanks, so much.
Your next.
Question comes from the line of John Barnidge from Piper Sandler Your line is open.
Thank you.
Long term care claims just don't seem to be coming back do you have a theory on governance on why that hasn't come back.
Hey, John It's Paul.
I don't know that we have a theory.
We can do is respond to these claims experienced that.
That we're seeing.
I understand that we seem to be out of sync with what other companies are experiencing.
Assume that that's a reflection of the.
The demographic profile of our policyholders versus others.
But beyond that I think it's sort of speculation.
Okay, and then my follow up prepayment income had been a tailwind to investment income really moderated in <unk> 'twenty two.
Any directionality on how we should be thinking about that thank you.
Why don't you Paul if you don't mind I'll do this one place alright.
Prepayment income if you look back three.
Three or four quarters prepaid.
Prepayment income.
It's consistent with what we the same experience we had in early 'twenty one.
Your first couple of quarters.
Europe , we had two very big quarters.
Third and fourth quarter of last year, when you had a rate driven.
Our experience with.
With rates moving up.
What youre what youre.
The right incentive is greatly diminished and so what you're basically left with it.
Turnover in valuation.
Prepayments affecting our commercial mortgage loan portfolio.
Very few.
I haven't seen a lot of bond calls.
In the recent quarter, so as rates go higher.
The the the right incentive diminishes.
That would be a way of thinking about it so the level we're at now.
I think is.
<unk> is a reasonable level to think about it. It's one we've experienced in the past, it's it's actually more normal than what we've had the last couple of quarters, which were really driven by buy rate incentive.
Goodman puts and takes here because to the extent that you have a you know a higher prepayment.
Sirius in the commercial mortgage loan portfolio that obviously affects book yield.
Negatively so.
Yes.
There's no free lunch with with the level of prepayment and call income.
Got it.
But I think the level you're seeing now.
$567 million per quarter is.
A reasonable expectation for the next couple of quarters ahead, given where interest rates seem to be going.
Thank you and then lastly, do you have a pro forma RBC for the <unk> impact at all thank you.
Hey, John It's Paul again, I don't expect L. D. T I will have any impact on our target rbcs.
So we would continue to target $3 75.
Keep in mind that L. DTI is purely a GAAP.
Standard it doesn't change anything in stat. So.
Operating dividend capacity won't be impacted by it.
Thank you Paul.
Your next question comes from the line of Russell Haug from Evercore ISI. Your line is open.
Hey, good morning.
So with the higher level of interest rates can you provide a sense for how your new money yield compares to runoff yields I mean is there still a pretty sizeable gap between the two or with the move higher in rates are we closer to spread compression and not really being a headwind.
Sure I can.
I'll take a first crack at this Eric if you want to provide color. So.
You know at a very high level.
Portfolio yield in the quarter was $4 60, the new money rate was $3 73, So there's still clearly a.
Our GAAP.
A lot of that 373 was put on in the early part of the quarter.
It's certainly higher was higher in the latter part of the quarter and is currently so that gap is narrowing.
I think if interest rates continue in the direction that they are in currently.
It's certainly conceivable that we reach an inflection point here, where we're putting new money rate.
New money to work at rates.
At or above the current portfolio yield.
And you know what has been a headwind for the last several years.
Becomes a tailwind and we certainly look forward to that dynamic.
Eric could you provide any other share or any other color.
Just to reinforce what you.
<unk> said that.
That.
Looking back to the first quarter.
Rough justice 75% of the.
New money that we.
That was generated for investment came to us during the first half of the quarter.
And when the tenure was probably 100 basis points.
Lighter.
And credit spreads were probably 30 40 basis points tighter as well.
And at that point.
During that period, I think new money rate was around $3 50 during the second half of the quarter. When we didn't really have a lot of new money to invest.
Basically after the middle of February .
Our new money rate was north of 4%.
And then subsequent to quarter end and up to now Youre looking at a much higher number.
Which is.
I will say north of $4 50.
So with a portfolio with a book yield.
Average yield in the up around $4 60.
I think it would be reasonable for you to conclude from what I'm, saying that for the bulk of our lines of business. We are probably standing on that crossover point right about now.
Uh huh.
Some of the really longer lines like long term care and life have higher book yields.
But with some of the health lines and in fixed annuities.
In the lower fours and so we've crossed over those.
No.
In general and on average I think we're probably pretty much there now but.
But again, we're not just grabbing yields were also wanting quality and to have a good asset liability match and so you know.
I think that we're in the balance of all of those factors youre going to see our portfolio continue to go to go up in quality trend up in quality stay on or keep our asset liability.
Match in good balance.
And I think this quarter, perhaps you will see.
The new money being a tailwind rather than a headwind certainly the second part of the quarter. So.
I think I hope that helps you with that question.
Got you I appreciate the color on that and then apologies if I missed this but on the <unk> impact.
Do you have any sense of directionally or otherwise the earnings impact from LPTA.
<unk>.
Yes, we don't yet so the only thing we've disclosed here is the estimated impacts on the balance sheet of transition.
Next step in this process is to roll that forward.
And to disclose.
The earnings impact in subsequent quarterly balance sheets.
As we move from one one 'twenty one through 'twenty, one and 'twenty two.
Thats currently a work in process.
But it's to a point where.
We're ready to disclose that we will that will be sometime in the second or third quarter.
I think more than likely it will be.
In September .
But we.
We feel very good about where we are in that process.
Just based on our own assessment.
Based on.
Hi.
Insight from consultants in the industry.
Have.
A good understanding of where the industry is probably.
Got it thank you.
Okay.
Again to ask a question. Please press star one on your telephone again Thats Star one on your telephone.
There are no questions over the phone presenters. Please continue.
Yes.
Thanks, operator, thanks, everyone for joining us today, and we look forward to speaking with you again soon.
Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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