Q2 2023 CNO Financial Group Inc Earnings Call
Good morning, and a warm welcome to the CNI financial group second quarter 2020, Great I call. My name is Cathy and I will be.
Right. Thanks call all lines have been placed on mute during the presentation portion of the call with an opportunity for question and answer if.
If you'd like to ask a question. Please press star.
Followed by one on your telephone keypad.
On this conference call I popped why I've been oatmeal. Please go ahead.
Good morning, and thank you for joining us on <unk> financial groups second quarter 2023 earnings Conference call.
Today's presentation will include remarks from Gary, but Ronnie 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.
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 website at <unk> <unk>.
<unk> 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 file our Form 10-Q and posted on our website on or before August.
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 GAAP measures, which should not be considered as substitutes for the most directly comparable GAAP measures.
You'll find a reconciliation of non-GAAP measures to the corresponding GAAP measures in the appendix.
Yeah.
Throughout the presentation, we will be making performance comparisons unless otherwise specified any comparisons made will be referring to changes between second quarter 2023, and second quarter 2022.
And with that I'll turn the call over to Gary.
Yeah.
Thanks, Adam Good morning, everyone and thank you for joining us.
We delivered a solid performance in the second quarter operating earnings were <unk> 54 per share.
The fundamentals of our business remain sound, including double digit sales production across multiple product categories.
<unk> capital position.
Strong free cash flow generation.
Another quarter of strong new money rates drove continued improvement on the earned yield on investments allocated to insurance products.
Variable investment income improved sequentially.
Elevated health claims impacted results in the quarter, we expect this to moderate in the second half of the year.
I will touch on this during his remarks.
Both our consumer and Worksite Division once again delivered strong sales production and agent results in the quarter.
Total new annualized premium was up 11%.
We reported double digit sales growth in field life sales Medicare supplement supplemental health and Worksite insurance sales.
Capital and liquidity improved and remained above target levels, even after returning $47 million to shareholders.
This demonstrates the strong cash flow generation of the enterprise.
Our high quality investment portfolio continues to produce stable core investment income.
Book value, excluding <unk> was up to $32.34 per share.
Turning to slide five and our growth scorecard.
Life and health production was strong in the quarter and client assets in our broker dealer and advisory services were up nicely.
Our broad product portfolio and balanced business model continues to provide strength stability and resilience to our overall results.
I'll discuss each division in the next two slides.
Beginning with the consumer division on slide six.
Sales production was strong continuing the growth momentum from the first quarter.
Life and health Nap was up 9% like.
Like production was up 7%.
Life sales were up 20% demonstrating the strength of our captive agent distribution and broad broad product portfolio to quickly respond to evolving customer needs.
Our D to C life channel was down 1% on a strong comparable.
But contributed to overall life sales growth through shared lead generation.
One third of field life sales in this quarter originated from a D to C customer elite.
This illustrates the value of our integrated distribution model.
During the second quarter, we also implemented accelerated underwriting on our simplified life products to address a growing market demand.
This real time underwriting solution gives customers an instant decision on their applications as they sit across the kitchen table from their age.
We expect roughly 60% of our underwritten life business to be eligible for this new process.
Health Nap was up 12% in the quarter driven by strong sales growth in Medicare supplement and supplemental health.
Medicare supplement was up 29% as consumers gravitating towards these plans continuing this positive trend from the last several quarters.
Our new more competitive Medicare supplement plans continued to perform well with customers and we've experienced the balancing of our Medicare product sales as a result.
As a reminder, we offer two types of Medicare products in our portfolio Medicare supplement products that we manufacture and abroad offering of third party Medicare advantage and part D prescription drug plans for which we collect piece.
By offering both Medicare supplement and Medicare advantage products, we can provide more coverage options for customers to choose from and respond immediately to shifts in the health care preferences of our middle market consumers.
Supplemental health plans were up 12% the fourth consecutive quarter of double digit growth.
This product continues to benefit from growth in our producing agent count.
Annuity account values were up 4% year over year annuity collected premiums for the quarter were the third highest ever posted for this product line, which is significant given the tough comparable.
Persistency remains within expected ranges. Additionally, we have experienced a modest shift towards fixed interest plans due to the higher interest rate environment.
As noted previously our captive distribution model and long term relationships, our agents build with customers provide stability to this block.
Client assets and brokerage and advisory were up 14% year over year to a new high of $2 9 billion.
We increased net inflows of new accounts, which strikes in the quarter. The strong returns that our customers captured from improved market conditions in the court.
When combined with our annuity account values, our clients entrust us with more than $14 billion of their assets.
Our diverse and integrated distribution model remains a differentiator for C&I, we marry a virtual connection with our established in person agent force, who served more than 230 communities nationwide.
We market nationally and complete the last mile of the sale of locally.
The strength of our agent force remains a key enabler of sales growth in the consumer Division.
Agent recruiting is a leading indicator of future sales growth and we were very pleased with our performance in the quarter.
Recruiting was up 27%, which represents our best overall recruiting quarter since late 2020.
This recruiting momentum has led to growth in our producing agent count which was up 8%.
Based on this trend we expect the agent force to continue to grow in the second half of the year.
Veteran agent retention and productivity remains strong.
All registered agent count increased 3% from prior year.
As economic uncertainty persists demand for securities professionals remain high.
This is especially critical for middle income consumers.
Expanding our bench of registered agents is key to how we serve our middle market with both insurance and financial protection products.
Turning to slide seven in our Worksite Division performance.
Life and health insurance sales were up 31% this quarter exceeding pre pandemic sales levels for the first time.
This is the ninth consecutive quarter of Worksite insurance sales growth.
As a reminder, immediately prior to the onset of the pandemic, our worksite business posted record sales production with eight consecutive quarters of growth prior to the first quarter of 2020.
Achieving this result marks a significant milestone in the return to growth trajectory for our Worksite Division.
Importantly sales from newborn broker relationships positively contributed to the sales performance in the quarter.
Expanding our broker sales pipeline remains a strategic initiatives for both our national and regional work site markets.
We recently launched several pilots designed to increase broker and great engagement.
We are very pleased with the early results.
Key indicators of the health of our Worksite business continue to trend positively in the quarter.
Retention of our existing employer customers was strong employee persistency within these employer groups with stable and collected premiums within these employer groups was also safe.
Yeah.
Total producing agent counts were up 32% in agent productivity remains strong.
Among our first year agents producing agent counts were up 94%.
And productivity in that cohort was up 64%.
As a reminder, agents must reach a certain level of production to be considered a producing agents.
Our successful Worksite agent referral program and enhancements to our new agent Onboarding program accredited for driving these meaningful agent productivity gains.
[noise] product refreshment remains an important component to accelerating worksite growth.
In early June we introduced a new accident insurance product available for both individual and Worksite sales.
Sales in the first month are off to a solid start representing nearly 10% of the total nap in the quarter.
As I shared last quarter, we are squarely focused on three strategic worksite growth priorities as we look to the second half of 2023 and beyond.
Continuing the integration of our Worksite capabilities under a single optimize brand.
Expanding distribution capabilities in our national and regional employer markets through new broker relationships and strategic alliances.
And accelerating momentum in agent recruiting to grow producing agent counts.
And with that I'll turn it over to Paul.
Thanks, Gary and good morning, everyone.
Turning to the financial highlights on slide eight.
Operating earnings in the period reflect continued growth in average net insurance liabilities.
Driven by growth of the business.
Improvement in the earned yield on the assets supporting those liabilities driven by improved new money rates in the last several quarters that have exceeded the portfolio yield.
And continued disciplined expense management.
We expect these favorable trends to continue.
Setting these favorable dynamics in the quarter were elevated health claims impacting our long term care and Thats up margins favorable L. D Ti related impacts in the prior year period, and our life margin.
And lower variable income from alternative investments and from call and prepayment activity in our bond portfolio.
From a capital perspective, we generated strong free cash flow in the period.
Completed $30 million of share repurchases and increased both RBC and holdco liquidity as compared to March 31.
All of which reflects continued capital management discipline.
Turning to slide nine.
Insurance product margin was down in the quarter, which was driven by a number of factors.
First as just mentioned we experienced elevated health claims in our long term care and Medicare supplement businesses.
It's worth noting that even at these levels, we are not running unfavorable to pre COVID-19 claims experience.
Even so we expect these claims to moderate in the second half of the year based on leading indicators and as a result did not change any of our go forward assumptions.
Second in two two of last year, there was a larger than typical reduction in claim liabilities in our traditional life business due to the work down of a backlog of claims that were in the course of the settlement the claims.
Payments also had an approximately $10 million positive impact on the change in the liability for future policy benefits calculated under L. D T I.
This is the primary driver of the negative variance in <unk> 23, compared to <unk> 22.
The margin in the current period is more reflective of our run rate expectation.
And third the margin in our annuities and our other annuities business varies based on our mortality experience, which was more favorable than the prior year period.
There is no change to the favorable long term view, we have on any of our product lines.
Turning to slide 10.
The new money rate in the quarter was $6 three 2% up.
Up from 553% in the prior year period, and largely flat versus $6 three 4% in the first quarter of this year.
This is the fifth consecutive quarter with new money rates in excess of the average yield on our allocated investments, which increased to 465% in the quarter up 11 basis points year over year.
And three basis points sequentially.
This marks the fourth quarter of sequential improvement in the second quarter of year over year improvement in net yield.
The increase in yield along with growth in net insurance liabilities and the assets supporting them contributed to a five 4% growth in net investment income allocated to products.
Investment income not allocated to products fell in the quarter driven by a decline in income from alternative investments and from call and prepayment activity.
These sources of income are by definition volatile, particularly income from alternative investments.
Was above our long term run rate expectation in <unk> of last year.
And below that expectation and <unk> of this year.
Our new investments in the quarter comprised approximately $590 million of assets.
With an average rating of double a minus and an average duration of just under seven years.
Our new investments are summarized some more detail on slides 21, and 'twenty two of the presentation.
Turning to slide 11, approximately 97% of our fixed maturity portfolio at quarter end.
Investment grade rated with an average rating of single a.
Reflecting our up in quality actions over the past several quarters.
In the last 12 months the allocation to single a rated or higher securities is up 470 basis points.
The Triple D allocation is down 330 basis points.
The high yield allocation is down 140 basis points.
Last quarter, we shared additional disclosures on our commercial real estate portfolio. This asset class continues to perform well we have again included metrics on these investments.
Slides 23, and 24 of the presentation.
Turning to slide 12, we.
We ended the quarter with a consolidated RBC ratio of 386%.
And holdco liquidity of $176 million.
Both improved relative to March 31 of this year and both comfortably above our targets of 375% and $150 million.
A portion of the improved capital position relates to a sale leaseback program.
Which would result, which resulted in a $43 million reduction in non admitted assets.
Corresponding increase in total adjusted capital in the quarter.
Turning to slide 13.
Based on the lower all in the first half and elevated long term care and med sub claims into Q.
We are adjusting our full year 2023 operating earnings per share forecast.
To a range of $2 65.
To $2 85.
There is no change to our other earnings related guidance.
So we still expect our full year expense ratio to be in a range of 19.0 to 19, 4%.
Our effective tax rate in the range of 23 point out at 24, 8%.
With respect to capital, we affirm our target consolidated RBC ratio of 375%.
And minimum holdco liquidity of $150 million.
Our target leverage of 25% to 28%.
We are revising our expected full year excess cash flow to the holdco to a range of $180 million to $200 million. So raising the low end of the range by $10 million with no change to the high end of the range.
Regarding our planned a formation of a captive Bermuda reinsurance company in the third quarter of this year, we continue to work through the regulatory approval process.
We will provide an update once that process has been completed and the treaty has been initiated.
And with that I'll turn it back to Gary.
Yeah.
Thanks, Paul.
Last month, we published our fourth annual corporate social responsibility report, which highlighted six focus areas that are most relevant to our business and the recent progress on our commitments.
As I've shared before the core of our business is helping people.
Every day.
For that reason corporate responsibility is embedded in our day to day operations.
Our success as a company is tied directly to the wellbeing of our associates agents customers and communities.
I invite you to download our report to learn more about our program and commitments you.
You can find it on our website.
As we look to the second half of 2023 I am pleased by our continued strong sales production and the progress we've made against our strategic priorities.
Our capital position liquidity and the cash flow generating company power of the company remained robust.
We thank you for your support of and interest in <unk> Financial group.
We will now open it up for questions operator.
Thank you Gary if you'd like to ask a question. Please press star followed by one on your telephone keypad if for any reason you'd like to withdraw your question. If you stop mollified team and as a reminder, if you like using a speakerphone. Please pick up your handset before asking your question.
So our last question comes from the line up Eric Ross of Autonomous. Your line is now open. Please go ahead.
Hi, Thank you can you provide some more color on what drove the elevated LTC.
Excuse me in Med sub claims this quarter and what the leading indicators you are seeing that give you confidence that help in LTC claims are going to return to a more normal level next quarter.
Sure Good morning, Erik it's Paul.
So the driver was simply.
An increase in new claimants in the quarter.
And the leading indicators that we're referring to are number one just the fact that we're sitting here on August 1st and so we've seen July claims first month of the quarter.
And those have trended favorably in both long term care and med sup.
And then with respect to long term care.
We have a leading indicator of that is fairly reliable.
The form of calls that come into our customer service call Center from policyholders are from family members of policyholders enquiring about how to make a claim as they contemplate.
Our claim at some point in the future.
Calls are trending favorably as well.
Got it that's helpful.
Yes.
What caused the surprise this quarter, then because I would've thought you would see similar leading indicators that would have flagged kind of an increase in potential activity.
Yes, I think it's a question Erika as to win.
When we have the leading indicator.
The reliance that we put on it so we're.
We're sharing current information and we're always incorporating.
Into the.
The financials that were filing each quarter. The most recent information.
Our best estimate.
I guess I would emphasize one other thing Eric and that is in long term care obviously.
And really all of our products are long duration.
In nature.
And I think it's a little bit dangerous to read too much into a single quarter I will say that long term care has performed extremely well over the last few years.
I would emphasize that even in the second quarter were claims were a bit elevated relative to our expectations.
They were still below pre COVID-19 levels.
And our view of the economics of this business over the long term.
Haven't changed we continue to feel really good about the business.
Thank you makes sense and if I could just sneak in one more I just wanted to follow up on your comments on the Bermuda captive should we take that it <unk> close is still realistic and still the goal and is there any change in your view on freeing up the $150 billion to $200 billion of capital at inception.
Hey, Eric This is Gary I'll take that one just a couple of comments I'd like to make about Bermuda.
There is no question in our mind number one there is no question in our mind that.
Participating in Bermuda and being a member of that community would be good for CMO.
We believe in the value of it which is why we continue to work on it. So we absolutely see that there is value for our shareholders.
Second.
We're eager to join the Bermuda community, we think we would be good citizens.
And we think we have value to add in being part of that community.
And third being good citizens and being valuable in that community also means that we respect the deliberations and the process that the Bermuda Monetary authority is going through.
We full well expect a successful conclusion, we certainly hope for that and we believe we've met all the requirements, but we want to be respectful of their process their deliberations their analysis, and which is why youre seeing us refrain from making specific comments, we think thats. The best course of action at the time, we want to make sure we give the Bermuda Monetary authority.
Any opportunity to do their job and continue to interact with us in good faith, which they have been joined the interactions that we continue to.
Feel very good about them, but we're going to refrain from any more specific commentary until they complete their deliberations.
Okay got it thank you.
Yeah.
Okay.
Thank you. Our next question comes from the line of John Barnidge of Piper Sandler. Your line is now open. Please go ahead.
Good morning, and thank you. My question is around expenses were there any onetime expenses in the first half of the year related to Bermuda that persist in the balance of 'twenty, three or maybe asked differently they'll no longer be present that we should be thinking about run rate. Thank you.
Good morning, John It's Paul.
Certainly we've had some expenses relating to the work we're doing to form the Bermuda company.
That would not persist in terms of.
Startup expenses, having said that the run rate expenses associated with operating in Bermuda.
That.
We will be incremental to the run rate prior to Permira.
And that's incorporated in our expense ratio guidance for the full year.
It isn't.
Directly responsive to your question, but.
And the same sort of context, I would say that.
In the first half there were.
Somewhat elevated litigation expenses.
Particularly as it related to the ongoing beachfront litigation, which we expect will diminish in the second half.
Great. Thank you very much and then.
My next question would be on product.
Any new product introduction, we should be thinking about where the pipeline for that.
Commentary on 60% under that simplifies life.
Can you maybe talk about.
Is that going to have increased conversion from velocity of processing versus paper and non non accelerated underwriting an underpenetrated market.
Hey, John This is Gary Thanks for the question.
We believe and I think I think this is conventional wisdom in the industry that quicker Decisioning, usually result in better sales because you have a reduced.
Likelihood of buyer's remorse or something like that.
It also.
Serves to help you a little bit from a competitive perspective.
So we look forward to continuing to deploy these types of processes and technologies to continue to make the decisions faster and then of course, there is efficiencies on our end right. The more we can do this in an automated way and unless we can handle paper the better our expense ratios are going to be so there's a win win all the way around if we can continue to bring more and more of our business under.
This type of an automated decisioning process. So that's definitely the goal. It takes time, we've got systems that have been around for a long long time. So it takes time to do this but we remain focused on that so that's kind of on the process. If you will I don't know if I'd call that a new product, but that's certainly new processes and we'll continue to do that in terms of product.
You saw the results on our Medicare supplement we're very pleased with how that continues to play we think there's continued opportunity there for us to continue to grow that.
Got some new products, we launched in work site. So we will continue to do that I think if we can do one or two new products a year I would be thrilled with that.
Have to navigate that as we move forward, but I've been pretty pleased with the work that our folks have done and will continue to do that so you should look.
You should expect to see us continuing to do that and I point to some of the sales and recruitment success. We've had directly emanating from that more I just want to join us when they know we remained committed to building more products and improving our processes and more consumers get interesting. So so we will continue to do that absolutely.
Thank you.
Sure.
Thank you. Our next question comes from the line of Brian Kruger of Stifel. Your line is now open. Please go ahead.
Hi, Thanks, Good morning on long term care was there any commonality in the higher new claims incidents in the quarter, whether it be by.
Issue year or.
Any commonality or did you just see a broad based increase in incidents this quarter.
Good morning, Ryan It's Paul So nothing specific that was called out as we went through the analysis internally.
So I think it's fair to say it was more broadly based.
Thanks, and then run the right Gary.
Ryan if I could just interject I just wanted to.
I guess draw more attention to a comment Paul made earlier about the importance of looking at this type of claims data on a much broader perspective.
Honestly, we just don't get that worked up on a quarter to quarter movement.
Just doesn't tell us that much it takes much more time and we're not seeing anything here that gives us that kind of concern I just want to emphasize the long term nature of of claims that I understand that what we released quarterly results people want to try and extrapolate that or at least understand if there's something to be extrapolated.
Just don't see it.
Don't see it.
Understood. Thanks, and then separate question on <unk>.
Fee income and fee revenue can you just give us a.
A little more perspective on that.
The seasonality, there and kind of what we should expect from us.
<unk> and <unk> were typically lower than the first quarter and the fourth quarter, but just any help you could provide there.
Hey, Ryan it's Paul again.
Xactly right.
Bigger quarters are the first and the fourth quarters and that's because this is primarily driven by the sale of med advantage product.
So that's really the first point the second point is that.
We've had some mixed shift.
Away from that advantage back to that's up in the wake of introducing the new med sup product in the second half of last year.
So in the quarter that was another contributor.
Thank you.
Thank you our next.
Our next question comes from the line.
Got it of Raymond James Your line is now open.
Go ahead.
Hey, good morning.
I guess the first question.
How do you think about pricing for Medicare supplement heading into 2024.
And if Medicare advantage writers end up increasing their pricing for 2024.
Would that benefit your revenue.
Giving you sell third party from the next year.
Okay.
Good.
I Wonder if I'm.
Yes, I was just with ally and sort of at a high level and then Paul can fill in the blanks.
Cause we participate on a fee basis if.
The pricing goes up we would have a benefit that I think that part is clear.
In terms of what the likelihood of that is I don't know for you I'm not sure. If that's where your question was gone or.
Gary maybe I could provide us some perspective that I think could be responsive Homer.
So in terms of how we think about pricing of med sup in 'twenty four I think that was the question.
We will do what we always do which is to look at the claims experience and that informs the.
The rate increases that we file around this time of year every year.
One of the nice things about this product because we have this annual opportunity.
On.
This year there is an additional dynamic I think that's fair to reference and that's the the.
The approval.
What kind of maybe four.
For Medicare claims.
The Alzheimer's treatment.
It's guesswork at this point in time to to know how that will impact claims, but I think directionally. It will until we will incorporate some assumption.
That.
<unk> rate filing for 'twenty four.
Thank you.
Maybe just give a little bit of color on it seems like.
You don't want to comment too much on Bermuda right now given you're in active discussions but.
Assuming you free up the $150 million to $200 million capital could you talk about some of the usage there.
Sure.
So, we'll we'll deploy excess capital the way that we always have.
Which is to try to put it to its highest and best use historically on the margin that that has.
Resulted in share repurchase.
So I suspect at least some portion of that gets deployed in that way.
Okay. Thank you.
Mhm.
Thank you.
Our next question comes from the line.
Hello, Matt.
BC capital. Your line is now open. Please go ahead.
Yes. Good morning, I just had a quick question on the guidance. It sounds like that's mostly reflects lower VII assumptions, but is there anything more we should be thinking about expected run rates of the different segments life annuity health in the back half of the year I know you mentioned that.
Claim should settle down versus the first half of the year, but is there anything else that we should be considering or looking at in the different segment units versus first half sure.
Sure Good morning, Scott It's Paul.
So let me provide let me let me try to provide some.
Some perspective on the second half forecast, which together with the first half actuals.
Results in our in our updated EPS guidance.
So for sure the biggest.
The sort of dynamic is.
Income from promotes.
Which were quite low in the first half.
And we're assuming will revert to more of a long term run rate expectation in the second half, which we think is a reasonable expectation.
For a couple of reasons number one.
We report I'll touch on a one quarter lag.
As you know and if you consider the equities have generally performed well recently.
<unk> spreads have tightened volatility has been down all of which would typically bode well for our alternative portfolio.
In addition.
Some of the recent underperformance relates to some idiot idiosyncratic results.
Our portfolio, mostly driven by investments that performed exceptionally well in 2021 and 2022 and gave some of that back in recent quarters, we have taken some actions to reduce <unk>.
Further exposure in those areas. So we think we're positioned well to perform well in the second half.
So that's the first thing the second thing is health claims as you mentioned.
And that we've talked about.
The third is in our in our life margin.
The first quarter is typically seasonally lower.
So the second half should shouldnt look better than the first half in that context and.
And also our.
Advertising expense is typically higher in the first half.
Then in the second half and you should expect that to continue.
This year.
Fourth I would reference the fact that.
Our net investment income allocated to products as.
Has trended favorably and you should expect that to continue as the yield on the allocated portfolio continues to improve based on continued higher new money rates and that will benefit margin across all of our products.
And then finally on expenses you should expect.
Those to continue to trend lower.
And that's based on some timing related to run rate expenses.
I mentioned the.
The elevated litigation expense, mostly related to beach one in the first half that we expect to be lower in the second half.
Then just in general continued expense discipline.
So it's really the combination of all of those things.
Inform our outlook for the second half and the full year.
Yes.
Okay, that's really helpful detail.
It sounds like based on your commentary Youre, feeling a lot better than.
What youre going to see at least Q3 versus Q2 on a reported number of them and I expect the number but it's you are expecting sequential improvement I would assume.
Yeah. This is Doug.
Eric.
Let me, let me jump in here.
Okay and certainly in.
Second quarter was up from the first quarter still not.
I want it to be over the longer haul.
Uh huh.
Yes, there's going to be variation from quarter to quarter.
What was what what trended positively in the quarter with.
Real estate and infrastructure are hedge funds and PE private credit.
Which as Paul said, it's always been a very strong performer for us.
A bit of a tougher quarter surprisingly because that's an area that we've done historically done extremely well in.
Hi.
Uh huh.
In some respect.
R R.
Al portfolio has aspects of.
So a little bit non traditional non traditional it has aspects of a carrier book.
It means that our.
<unk> that throw off.
Very healthy cash dividend.
And yet.
<unk>.
Or have been in fact over the last several quarters bye bye.
Slope of the yield curve is and by the fed.
Fed action.
Cogs underlying asset revaluation now that is in late innings.
Which supports Paul's earlier comments about about probably having a better second half of.
Of the year there but.
Throwing off the portfolio alts portfolio throwing off cash dividends.
Pretty much on time and on schedule.
Actually the higher end of our expectation.
Yeah.
I think we are in the kind of the later innings of the last.
What's been not not the easiest several quarters for all but.
But.
Don't feel feel good about what's.
What's ahead and last comment.
We've.
Our.
Total general comp book yield is up.
12, 13 basis points.
Year to date.
And you know.
One of my favorite Ceos are saying about basis points and billions.
And.
That that will serve us very well as Paul said looking forward. So.
That has been helpful.
Okay got it.
Last one just switching a little bit just I wonder if you could talk about some of the mortality trends youre seeing in the life book.
Versus.
This quarter versus some of the recent quarterly run rates and how is that comparing to pre COVID-19 mortality trends that youre seeing on the life side.
Anything you can share that.
Sure the mortality assumption.
In our life products is that it's a little bit worse than pre COVID-19.
And the context for that is the assumption that.
Covid has translated to an endemic state, which still create some some amount of excess.
Mortality.
So that's the basic assumption that that Hasnt changed.
Since we most recently visited it back in the fourth quarter of last year.
Our experience in the second quarter was a little bit better than that.
Not materially.
To the plus side of our.
Our long term expectations.
Okay. That's helpful. Thanks, a lot.
Thank you.
Our next question comes from the line of Amit Kumar of Jefferies. Your line is now open pit go ahead.
Yes, Thanks, I wanted to start with the health margin I hear you on the long term care and we have to look at this over a long period of time, but just on the med sup piece. It does look like that margin was has been low now for lower than kind of where it's been for two quarters in a row and we did note that some of the health insurance companies had talked about elevated utilization.
Amongst older age individuals. So just wanted to unpack that a little bit seeing if you. If you guys are being impacted by what some of the HMO companies are talking about and we'll get to that kind of back on track.
Sure. Good morning, so yeah. So we had some some some somewhat elevated claims activity and mix up in the quarter.
Likely driven by some of the stuff that.
Other companies have talked about.
But I would.
Based on.
July experience, we see that we see that moderating.
The other point I would make is that our med sup book.
It has been declining in size as a result of.
The decline in med sub sales over the last few years.
Yes.
Begun to turnaround with the new product, we introduced late last year, but.
Nevertheless for.
For the last couple of years, including through the second quarter.
That explains.
More than half of the decline in margin.
Quarter over quarter.
Okay got it and then I guess on the expense ratio.
I think it's been running closer to 20% in the first half and so if youre sticking with your kind of 19% to $19 four that would mean something closer to 18, I guess for the second half and is that the right way to think about it and then are there sort of discrete things that youre doing to bring the expense ratio down I get that some of the beechwood stuff will fall.
But it seems like it's got to be a little bit better than full year guidance just to kind of get you to where you want to land.
Yes, so all of those observations are absolutely correct.
We nevertheless feel good about.
The forecast.
For the reasons that I've talked about.
Fences.
Are trending favorably there were lower this quarter than they were a year ago.
And there is some timing first half versus second half just on run rate expenses.
And then the other things that I mentioned.
We expect will drive us to an expense ratio for the full year in the range in our outlook.
Yeah.
Got it and if I could just sneak one more in just on the investment losses, I think they've been traveling around $20 million for the past two quarters, just wondering what's going on there or is that something where youre selling at losses to go up in quality or what's just if you can unpack that a little bit that'd be helpful. Thanks.
Yes, I can make just a couple of comments and then Eric.
Ill turn it over to you so that the biggest driver of the realized loss in the quarter was.
We sold some first Republic bonds.
But.
Eric If you want to if you want to provide some more color beyond that.
Yes.
Taking the first half of the year as a whole.
The.
There's about three factors at work.
One would be as Paul mentioned above.
About probably about.
30%, 35% would relate to first Republic.
In the rear view mirror.
Another 30%, 35% would relate to.
Some are up and up in yield.
And up in quality.
<unk> that we had particularly during the first quarter, where we were able to rotate.
In.
Up in quality and up in book yield at the same time.
They're kind of the payback period on the loss would be two or three or four years of future.
Investment so very pretty quick.
Pretty quick.
<unk>.
The law.
Out of corporates into agencies.
Very easy easily done during the early part of the year and then the residual like 20%, 30% would relate basically just kind of ongoing kind of portfolio pruning.
You're doing all the time.
Pick away at it.
Migrating credit spread.
You don't feel good about.
As you did say you bought them.
No.
One part opportunistic one part of the problem in one part just normal maintenance would be a way of thinking about it.
Got it thank you.
Youre welcome.
Thank you final question comes from the line of Gallagher of Evercore. Your line is now open. Please go ahead.
Good morning.
Paul I hear what you said about looking at July data being favorable for long term care claims but.
Even even.
Yeah.
With the <unk> being elevated I think you said, it's still below pre pandemic levels and so I guess my question is isn't it reasonable to assume you are more likely to revert to this level or higher if I think about steady state.
Over the next several quarters or do you think there is some reason why you will have a permanent benefit on the loss ratio with this product.
Good morning, Tom Paul So I think reasonable people could certainly disagree on this.
We're all sort of just making.
Guesses.
But our view is that the claims will settle in.
Over the long term, it's something better than pre Covid, just because I think some behaviors have actually changed.
In terms of how people interact with the health care system.
So that's a long term view.
We'll see if that proves correct or not.
And then in the near term just the near term.
Caters would suggest that the third quarter will look a lot better than the second quarter.
Yeah.
Got you and from the standpoint of the changes you made with the new <unk> accounting does that contemplate.
And longer term improvement in long term care claim trends as well or do you.
Is there a current reserving using <unk>.
Similar assumptions as pre pandemic levels.
So we revisit our assumptions in the normal course in the fourth quarter under H GAAP under and under L. DTI.
And we didn't think any significant change in assumptions in the most recent fourth quarter I'm looking at Karen Vittorio on the screen here.
Karen do you agree with that.
Does that makes sense, Tom does that answer your question, maybe I'm not understanding of course that.
That does no yes. So so long term you haven't really changed our long term assumption so to the extent that.
If there were to be favorability that that.
Should be.
We'll call it an earnings benefit on a go forward basis is that is that fair Paul.
Well, we didn't significantly change the assumptions in the fourth quarter of this year as compared to the fourth quarter of last year I think our assumptions are a little bit different now than they were before March of 2020.
Not sure I would just add to that.
Reviewing those assumption in the fourth quarter. This year, we don't have any evidence to date that at this point, which caused us to believe that the changes just wondering Tim but we'll do that as part of our normal annual review.
Right. Thank you Karen Okay.
Thanks, Thanks for that and one final one if I if I could.
Just out of curiosity the.
Now when I look at your guidance it implies $80 to 90 cents per quarter of earnings for the back half of the year.
Was that.
In line with what it was before this quarter and when you put out the guidance. Initially was there always an expectation of much stronger earnings in the second half of the year to that magnitude or has that changed are you assuming.
Some mean reversion.
<unk> benefit now that you werent assuming before.
Yeah.
It's a good question.
Actually our.
Plans for the second half.
Has not changed materially some puts and takes across different things, but in total.
Essentially the same.
Earnings per share perspective.
So really all of the drivers to the change or what we experienced in the first half.
Largely the alts in the first and the second quarter.
And then long term care, primarily and a little bit soft in the second quarter.
Yeah.
Okay. That's all I had thank you.
Okay.
Thank you.
There are no additional questions at this time I would like to turn the call back over to automobile for closing remarks.
Thank you operator, and thank you all for participants participating in today's call. Please reach out to Investor Relations team. If you have any further questions have a great rest of your day.
Ladies and gentlemen, this concludes today's C and I find that.
Close to 2023.
Cool. Thank you for joining you may now disconnect your lines.
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