Q3 2023 CNO Financial Group Inc Earnings Call
Yeah.
Speaker 1: Hello, welcome to today's CNO financial group third quarter 2023 earnings call. My name is Jordan and I'll be coordinating your call today. If you'd like to register an audio question, you may do so by pressing star, followed by one on your telephone keypad. I'm not going to hand over to Abum Orville to begin. Adam, please go ahead.
Hello, and welcome to today's C. N O financial groups third quarter 'twenty 'twenty free earnings call. My name is Jordan and I'll be coordinating your call today, if you'd like to register an audio question you may do so by pressing star followed by one on your telephone keypad.
I'm going to hand over to bill to begin Adam. Please go ahead.
Sure.
Good morning, and thank you for joining us and see you know financial group's third quarter 2023 earnings topical.
Speaker 2: Good morning, and thank you for joining us on CNO Financial Group's third quarter 2023 earnings conference call.
Speaker 2: Today's presentation will include remarks from Gary Buzwani, Chief Executive Officer, and Paul McDonough, Chief Financial Officer.
Today's presentation will include remarks from Gary, but as Ronnie Chief Executive Officer, and Paul Mcdonough, Chief Financial Officer.
Speaker 2: Following the presentation, we will also have other business leaders available for the question and answer it. During this conference call, we will be referring to information contained in yesterday's press release. You could obtain the release by visiting the Media section of our website at cnointc.com.
Following the presentation. We will also have other business leaders available for the question and answer it.
Great.
During this conference call, we will be referring to information contained in yesterday's press release.
You can obtain the release by visiting the media section of our website.
I N C dot com.
This mornings presentation is also available on the investors section of our website.
It was filed in a form 8-K yesterday.
We expect to file our Form 10-Q.
On our website on or before.
Yeah.
Okay.
Let me remind you that any forward looking statements.
A number of factors may cause actual results to be materially different than those contemplated by the forward looking statements.
Speaker 2: Today's presentation contains a number of non-GAAP measures, which should not be considered as substitutes for the most directly comparable GAAP measures.
Today's presentations contain a number of non-GAAP measures, which should not be considered as substitutes for the most directly comparable GAAP measure.
Speaker 2: find a reconciliation of the non-GAAP measures with a corresponding gap.
Find a reconciliation of the non-GAAP measures to the corresponding GAAP measures.
Okay.
Speaker 2: Throughout the presentation, we'll be making performance comparisons, and unless otherwise specified, any comparisons made will be referring to changes between third quarter 2023 and third quarter 2022. And with that, I'll stop there. Thank you. Thank you.
Throughout the presentation, we will be making performance comparisons and unless otherwise specified any comparisons made will be referring to changes between third quarter 2023, and third quarter 2022.
With that I'll turn the call over to Gary.
Thanks, Adam.
Morning, everyone and thank you for joining us.
Speaker 3: CNO again delivered a solid financial performance for the court.
<unk> again delivered a solid financial performance for the quarter.
Speaker 3: Operating earnings per diluted share were up 88 cents.
Operating earnings per diluted share were up 88 cents.
Excuse me up to eight were <unk> 88 up 31%.
Speaker 3: Excuse me, up to 8, we're 88 cents up 31%.
Speaker 3: Scloating significant items operating earnings per share were up 10%.
Excluding significant items operating earnings per share were up 10%.
Speaker 3: Fundamentals of our business remain sound, including double-digit growth in total new annualized premium. Continued sales will meant to balance across thought-acquired, strong net investment income.
The fundamentals of our business remain sound, including double digit growth in total new annualized premium.
Continued sales momentum balanced across product lines.
Strong net investment income.
Our robust capital position.
And continued strong free cash flow generation.
Speaker 3: So the third consecutive quarter new money rate exceeded 6%. Continuing the positive trend.
For the third consecutive quarter, new money rates exceeded 6% continuing the positive trend in our earned yield.
Speaker 3: Variable investment income improved for a second consecutive quarter. Health claims moderated in the-
Variable investment income improved for a second consecutive quarter.
Health claims moderated in the quarter as expected.
Speaker 3: Sales production and agent recruiting and retention delivered strong balance results across both our consumer and worksite divisions.
Sales production and agent recruiting and retention delivered strong balanced results across both our consumer and Worksite divisions.
Total new annualized premium was up 13%.
Speaker 3: We reported sales growth in nearly all product categories, including field and B2C life sales, Medicare Supplement.
We reported sales growth in nearly all product categories, including field and DTC life sales.
Medicare supplement.
Long term care.
Speaker 3: annuity collected premiums and worksite insurance.
Annuity collected premiums.
The Worksite insurance sales.
Speaker 3: Producing agent accounts were up meaningfully at both divisions.
Producing agent counts were up meaningfully at both divisions.
Speaker 3: Capital and liquidity improved over the second quarter and was above target levels, even after returning $57 million to Sheryl.
Capital and liquidity improved over the second quarter and was above target levels, even after returning $57 million to shareholders.
Speaker 3: Book Value Produe Louted Share, excluding AOCI, was $33.75 up 6%. We are pleased to announce that we established our Bermuda affiliate and received all necessary approvals related to our initial reinsurance transaction. All will go under FOC-
Book value per diluted share, excluding <unk> was $33 75 up 6%.
We are pleased to announce that we established our Bermuda affiliate and received all necessary approvals related to our initial reinsurance transactions.
Paul will go into further detail during his remarks.
Speaker 3: We applaud and thank our CNO team for their exceptional work and commitment to helping us establish CNO Bermuda Re.
We applaud and thank our C&I team for their exceptional work and commitment to helping us establish CMO Bermuda REIT.
Turning to slide five and our growth scorecard.
Speaker 3: Our consumer and worksite division delivered strong overall results, including a second consecutive quarter of double digit growth in life and health.
Our consumer and Worksite divisions delivered strong overall results, including our second consecutive quarter of double digit growth in life and health Nap.
Speaker 3: Strategic investments and product enhancements in both divisions have positioned us well to capture important year-end sales and enrollment opportunities. I'll discuss each division in the next two slides.
Strategic investments and product enhancements in both divisions have positioned us well to capture important year end sales and enrollment opportunities.
I'll discuss each division in the next two slides.
Beginning with the consumer division on slide six.
Speaker 3: Sales momentum accelerated in the quarter with results balanced across the product portfolio. Life and health map.
Sales momentum accelerated in the quarter with results balanced across the product portfolio.
Life and health Nap was up 9%.
Speaker 3: Life production was up 8% with field sales up 6% and D to C live sales up 9.
Life production was up 8% with field sales up 6% and D to C life sales up 9%.
Speaker 3: Strong beta C-sales reflect our measured and opportunistic approach to advertising.
Strong DTC sales reflect our measured and opportunistic approach to advertising spend.
Speaker 3: HealthNap was up 11% in the quarter and is up 11% year to date as our growing agent counts and new product introduction support sustained sales.
Health Nap was up 11% in the quarter and is up 11% year to date as our growing agent counts and new product introductions support sustained sales growth.
Speaker 3: Long-term care nap was up 48% following the launch of our new Long-term Care Fundamental Plus product in 45 states in August .
Long term care Nap was up 48% following the launch of our new long term care fundamental plus product in 45 states in August.
This launch continues our strategy to offer plans to the middle market that cover essential costs for the first one to two years of care.
Speaker 3: This launch continues our strategy to offer plans to the middle market that cover essential costs for the first one to two years of care.
Speaker 3: as the U.S. population ages and we are living longer, a need for practical long-term care solutions continues to rise.
As the U S population ages, and we are living longer the need for practical long term care solutions continues to rise.
Speaker 3: Our long-term care policies with shorter duration benefits periods provide a balance, affordable approach to funding long-term.
Our long term care policies with shorter.
With shorter duration benefit periods provide a balanced affordable approach to funding long term care.
More than 98% of the policies, we sell had benefit periods of two years or less.
Speaker 3: More than 98% of the policies we sell have benefit periods of two years or less.
Speaker 3: Medicare supplement nap was up 9% as consumers continue to embrace our new
Medicare supplement nap was up 9% as consumers continue to embrace our new plants.
Speaker 3: Presently we are in the midst of the Medicare Annual Enrollment period, which began on October 15th and run through December 7th.
Presently we are in the midst of the Medicare annual enrollment period, which began on October 15th and run through December seven.
Speaker 3: Using our MyHealthPolicy.com online platform, our agents can enroll consumers in Medicare Advantage and Medicare Prescription Drug Plans from 14 different plans on.
Using our health policy Dot Com online platform, our agents can enroll consumers in Medicare advantage and Medicare prescription drug plans from 14 different plan sponsors.
Speaker 3: This season we have nearly 3,200 agents certified to sell these plants, which is up 14% over last year. We are...
This season, we have nearly 3200 agents certified to sell these plan, which is up 14% over last year.
We are off to a strong start.
Speaker 3: Our local agents are key differentiator making these sales and reducing.
Our local agents are a key differentiator and making these sales and reducing churn.
Speaker 3: Agents bring local knowledge that is uniquely suited to help customers with their enrollment.
In spring local knowledge that is uniquely suited to help customers with their enrollment decisions.
Speaker 3: They build enduring relationships while assisting with the additional insurance and retirement planning.
Build enduring relationships, while assisting with the additional insurance and retirement planning needs.
Speaker 3: Our capabilities to market nationally and complete the vital last mile of the sale to a local agent is a unique and valued
Our capabilities to market nationally and complete the vital last mile of the sale to a local agent is a unique and valued strike.
Speaker 3: We also recognize the need to supplement human interaction with technology.
We also recognize the need to supplement human interaction with technology.
Speaker 3: Two new initiatives illustrate how we're using technology and able tools to gain operational efficiencies and improve customer value.
Two new initiatives illustrate how we're using technology enabled tools to gain operational efficiencies and improve customer value.
Speaker 3: In preparation for the AEP, we invested in our Medicare health insurance technology platform to expand scale and enhance our capability.
In preparation for the AEP, we invested in our Medicare Health insurance technology platform to expand scale and enhance our capabilities.
Speaker 3: Over 95% of all Medicare Advantage and prescription drug plans are now submitted through our MyHealthPolicy.com portal.
Over 95% of all Medicare advantage and prescription drug plans are now submitted through our my health policy Dot Com portal.
Yeah.
Speaker 3: Earlier this year we also implemented accelerated underwriting on a portion of our simplified life process.
Earlier this year, we also implemented accelerated underwriting on a portion of our simplified life products.
Speaker 3: This quarter, approximately 75% of those applicants received an instant decision.
This quarter approximately 75% of those applicants received an instant decision.
Speaker 3: Annuity account values were up 4% year over year and collected premiums were up 1%.
Annuity account values were up 4% year over year and collected premiums were up 1%.
Speaker 3: As noted previously, a proprietary distribution model and the long-term relationships that our agents build with customers provides stability to this block and persistency remains within expected levels.
As noted previously our proprietary distribution model and the long term relationships that our agents build with customers provides stability to this block and persistency remains within expected levels.
Speaker 3: Client assets and brokerage and advisory were up 18% year over year to $2.9 billion.
Client assets and brokerage and advisory were up 18% year over year to $2 9 billion.
Speaker 3: Total accounts were up 7% in the quarter, and clients continue to entrust us with strong net.
Total accounts were up 7% in the quarter and clients continue to entrust us with strong net inflows.
We are very pleased with our agent performance in the quarter.
Speaker 3: We are very pleased with our agent performance in the quarter. Recruiting was up 22%. Our fifth consecutive.
Recruiting was up 22% our fifth consecutive quarter of growth.
Speaker 3: and we posted our best overall recruiting quarter since the third quarter of 2020.
We posted our best overall recruiting quarter since the third quarter of 2020.
Speaker 3: Through these efforts and good agent retention practices, our producing agent count continues to grow up 9%. Next, slide seven in our worksite division performance. I'd like to first
Through these efforts and good agent retention practices, our producing agent count continues to grow up 9%.
Next slide seven in our Worksite Division performance.
I'd like to first congratulate two members of our management team.
Mike buyers and Karen detour.
Speaker 3: We recently announced that Mike Byer, the president of our worksite division, will be retiring early next.
We recently announced that Mike <unk>, the president of our Worksite Division will be retiring early next year.
Speaker 3: We named Karen DeToro, currently our chief actuary, as Mike's successor to lead CNO's worksite.
We named Karen Vittorio currently our chief Actuary as Mike's successor to lead CNS Worksite business.
Speaker 3: This news reflects C&O's ongoing commitment to, and investments in, our worksite business and outcomes.
This news reflects <unk> ongoing commitment to an investment in our worksite business and optimize.
Speaker 3: Karen's deep knowledge of our business and the employee benefits and insurance space is a well matched for the next stage in the evolution of
Karen has deep knowledge of our business in the employee benefits and insurance space is well matched for the next stage in the evolution of this division.
Speaker 3: We remain bullish on this business and I look forward to the continued success we can achieve under Karen's leaders.
We remain bullish on this business and I look forward to the continued success, we can achieve under karen's leadership.
Speaker 3: I would also like to congratulate Jeremy Williams, who will succeed Karen as our Chief Action
I would also like to congratulate Jeremy Williams, who will succeed Karen as our chief Actuary.
Speaker 3: All three of these internal moves are testament to our deep bench strength of leadership talent at C&O.
All three of these internal moves are testament to our deep bench strength of leadership talent at CMO.
Speaker 3: Karen, Mike, and Jeremy will work closely over the coming months to ensure a seamless transition.
Karen Mike and Jeremy will work closely over the coming months to ensure a seamless transition.
Yeah.
Turning to our third quarter results.
Speaker 3: Work site life and health insurance sales were up a record 36%, which represents a 14% increase above pre-pandemic sales.
Worksite life and health insurance sales were up a record, 36%, which represents a 14% increase above pre pandemic sales levels.
Speaker 3: In four of the past five quarters, insurance sales growth has exceeded 20%.
In four of the past five quarters insurance sales growth has exceeded 20%.
Speaker 3: As a reminder, immediately prior to the onsite of the pandemic, our work site insurance business posted record sales with eight consecutive quarters of growth.
As a reminder, immediately prior to the onset of the pandemic, our Worksite insurance business posted record sales with eight consecutive quarters of growth.
Speaker 3: Last quarter, our worksite insurance sales exceeded pre-pandemic levels for the first time since 2020.
Last quarter, our Worksite insurance sales exceeded pre pandemic levels for the first time since 2020.
Speaker 3: This quarter we expanded those gains by double digits.
This quarter, we expanded those gains by double digits.
Speaker 3: Total producing agent counts were up 24% and agent productivity was up 5.
Total producing agent counts were up 24% in agent productivity was up 5%.
Speaker 3: Among our first-year agents, producing agent counts were up 58%. And productivity on that cohort was up 41%.
Among our first year agents producing agent counts were up 58% and productivity on that cohort was up 41%.
Speaker 3: As a reminder, agents must reach a certain level of production to be considered a producing aid.
As a reminder, agents must reach a certain level of production to be considered a producing agents.
Speaker 3: our successful worksite agent referral program and enhancements to our new agent onboarding program. Accredited for driving these meaningful agent protocols.
Our successful Worksite agent referral program and enhancements to our new agent Onboarding program accredited for driving these meaningful agent productivity gains.
Speaker 3: In the third quarter, we advanced several initiatives and partnership programs that focused on accelerating growth and adding value to our employers and-
In the third quarter, we advanced several initiatives in partnership programs that focused on accelerating growth and adding value to our employers and employees.
Speaker 3: Our Geographic Expansion Initiative is experiencing early success in key markets where we've identified strategic opportunities to grow our market share and put...
Our geographic expansion initiative is experiencing early success in key markets, where we've identified strategic opportunities to grow our market share and footprint.
Speaker 3: Late in the quarter, we also launched a nationwide training program focused on helping agents identify and cultivate new works cited.
Late in the quarter. We also launched a nationwide training program focused on helping agents identify and cultivate new worksite accounts.
Speaker 3: Two new third party technology partnerships will bring enhanced tech enabled services to our benefits enrollment.
Two new third party technology partnerships will bring enhanced tech enabled services to our benefits enrollment offerings.
Speaker 3: Through these partnerships, we recently added enhanced decision support to our benefit administration platforms and clinical advocacy and virtual care options to our current advocacy service.
Through these partnerships. We recently added enhanced decision support to our benefit administration platforms and clinical accuracy and virtual care options to our current advocacy services.
Both the sales initiatives and the technology partnerships received a positive initial reception.
Speaker 3: Both the sales initiatives and the technology partnerships received a positive initial result.
Additionally, the new accident insurance product that we introduced in June continued to perform well with sales topping more than $4 million in nap.
Speaker 3: Additionally, the new accident insurance product that we introduced in June continued to perform well with sales topping more than $4 million.
Speaker 3: URN benefits enrollment season is a critical time for employers and our worksite business. Our team is well prepared to...
Year end benefits enrollment season is a critical time for employers in our Worksite business. Our team is well prepared to serve and support our clients.
Speaker 3: As I share glass quarter, we are squarely focused on three strategic worksite growth priorities.
As I shared last quarter, we are squarely focused on three strategic worksite growth priorities.
Speaker 3: continuing the integration of our workside capabilities under the optimized brand.
<unk> the integration of our Worksite capabilities under the optimized brand.
Speaker 3: expanding distribution capabilities in our national and regional employer markets through new broker relationships and strategic alliances.
Expanding distribution capabilities.
In our national and regional employer markets through new broker relationships and strategic alliances.
Speaker 3: and accelerating momentum and agent recruiting to grow producing agent counts. And with that, I'll turn it over to Paul.
And accelerating momentum in agent recruiting to grow producing agent counts.
And with that I'll turn it over to Paul.
Okay. Thanks.
Thanks, Gary and good morning, everyone.
Speaker 3: Before turning to my remarks on the quarter, I'd like to comment on our newly formed Bermuda affiliate, CNO Bermuda-Ree, and the initial re-insurance treaty.
Before turning to my remarks on the quarter I'd like to comment on our newly formed from beauty affiliate CNI Bermuda re and the initial reinsurance treaty.
Speaker 3: We have received all necessary approvals and are in the process of implementing the transaction with an effective date of October 1, 2023. We have received all necessary approvals and are in the process of implementing the transaction with an effective date of October 1, 2023.
We have received all necessary approvals and are in the process of implementing the transaction with an effective date of October one 2023.
Speaker 2: Under the treaty, we are ceding approximately $6.2 billion of in-force fixed indexed annuity statutory reserves, in addition to new FIA business from our U.S. domestic company, Banker's Life and Casualty, to the Bermuda Company.
Under the Treaty, we are seeding approximately $6 $2 billion of in force fixed indexed annuity statutory reserves. In addition to new FIA business from our U S domestic company bankers life and casualty to the Bermuda company.
Speaker 2: We are proud to have joined the Bermuda Insurance Community and look forward to working closely with the Bermuda Monteria Authority as we build out this business. We are proud to have joined the Bermuda Insurance Community and look forward to working closely with the Bermuda Monteria Authority as we build out this business.
We are proud to have joined the Bermuda insurance community and look forward to working closely with the Bermuda Monetary authority as we build out this business.
Turning to the financial highlights on slide eight.
Speaker 2: We generated operating earnings per share of 88 cents in the quarter, which is up 31% year-over-year, as reported and up 10% excluding the significant item this period.
We generated operating earnings per share of 88 in the quarter, which is up 31% year over year as reported and up 10% excluding the significant items this period.
Speaker 3: Results in the quarter reflect strong insurance, product margins, and improved variable investment income results.
Our results in the quarter reflect strong insurance product margins and improved variable investment income results.
Speaker 3: He income in the quarter declined year over year for two reasons. Number one, in our consumer business, despite a 3% increase in Medicare Advantage policy issued, revenue was down as the favorable impact of assumption changes under AFC 6-O-6 accounting has diminished over time.
Fee income in the quarter declined year over year for two reasons number one in our consumer business. Despite a 3% increase in net Medicare advantage policies issued revenue was down as the favorable impact of assumption changes under ASC 606, accounting has diminished over time.
Speaker 3: And then secondly, in the the income side of our work site business, revenues and expenses have been pressured as we've invested in this platform to position it better for the future.
Then secondly in the fee income side of our Worksite business revenues and expenses have been pressured as we've invested in this platform to position it better for the future.
Speaker 3: Keep in mind that our C income is highly seasonal, driven by the Medicare Advantage annual enrollment period, resulting in higher income in the first and fourth quarter.
Keep in mind that our fee income is highly seasonal driven by the Medicare advantage annual enrollment period, resulting in higher income in the first and fourth quarters.
Speaker 2: Expenses more broadly in the quarter were a little on the high side, but within the range of our expectation.
Expenses more broadly in the quarter were a little on the high side, but within the range of our expectations.
Speaker 2: On the capital front, we completed $40 million of sharey purchases in the quarter and continue to manage well above our capital and liquidity targets.
On the capital front, we completed $40 million of share repurchases in the quarter and continued to manage well above our capital and liquidity targets.
Turning to slide nine.
Speaker 3: Insurance product margin was strong in the quarter with some variability across product life.
Insurance product margin was strong in the quarter with some variability across product lines fixed.
Speaker 3: Fixed indexed annuity margins reflect moderating spreads and growth in the block. I will note that current spread levels are consistent with pricing and target return.
Fixed indexed annuity margins reflect moderating spreads and growth in the block I will note that current spread levels are consistent with pricing and target returns.
Speaker 2: In other annuities, mortality was favorable in the prior period and in line with expectations in the current period.
In other annuities mortality was favorable in the prior period.
And in line with expectations in the current period.
In our health products supplemental health margins benefited from growth in the block and continued favorable claims experience.
Speaker 2: In our health products, supplemental health margins benefited from growth in the block and continued favorable claims experience.
Speaker 3: Claims experience in long-term care and Medicare supplement was in line with expectations, rebounding from the elevated claims we had experienced in the second quarter.
Claims experience in long term care and Medicare supplement was in line with expectations rebounding from the elevated claims we had experienced in the second quarter.
Speaker 2: MedSup margins reflect the continued runoff of the legacy block of business and growth in the new block.
Med Sup margins reflects the continued runoff of the legacy block of business and growth in the new block.
Speaker 2: long-term care margins in the prior year period reflected particularly favorable claims experience still somewhat COVID related which we did not expect would be repeated in the current period. Finally, life margins benefited from growth in the block.
Long term care margins in the prior year period reflected particularly favorable claims experience still somewhat COVID-19 related which we did not expect would be repeated in the current period.
Finally life margins benefited from growth in the block.
Turning to slide 10.
Speaker 2: The new money rate in the quarter was 6.03% up from 5.36% in the prior year period, and down slightly versus 6.32% in the second quarter of this year.
The new money rate in the quarter was six point or 3% up from 536% in the prior year period and down slightly versus $6 three 2% in the second quarter of this year.
Speaker 2: This is the sixth consecutive quarter with new money rates in excess of the average yield on our allocated invest.
This is the sixth consecutive quarter with new money rates in excess of the average yield on our allocated investments and the third consecutive quarter of new money rates above 6%.
Speaker 3: And the third consecutive quarter of new money rates above 6%.
Speaker 3: The average yield on allocated investments increased to 4.69% in the quarter of 12 basis points year over year and four basis points sequentially.
The average yield on allocated investments increased to $4 six 9% in the quarter up 12 basis points year over year and four basis points sequentially.
Speaker 3: the steady increase in yield along with strong production.
The steady increase in yield along with strong production.
Speaker 2: driving growth and net insurance liabilities and the assets supporting them, contributed to the second consecutive quarter of plus 5% growth in net investment income allocated to products.
Driving growth in net insurance liabilities and the assets supporting them contributed to the second consecutive quarter of plus 5% growth in net investment income allocated to products.
Speaker 2: investment income not allocated to products increased nearly 42% in the quarter, primarily driven by an improvement in income from alternative investment.
Investment income not allocated to products increased nearly 42% in the quarter, primarily driven by an improvement in income from alternative investments.
Speaker 3: Results remain below our long-term return expectations for this asset class. However, we are pleased to see this improvement.
Results remain below our long term return expectations for this asset class. However, we are pleased to see this improvement.
Speaker 3: Our new investments in the quarter comprised approximately $550 million of assets with an average rating of double A minus and an average duration of just under eight years.
Our new investments in the quarter comprised approximately $550 million of assets with an average rating of double a minus and an average duration of just under eight years.
Speaker 2: Our new investments are summarized in more detail on slides 21 and 22 from the presentation.
Our new investments are summarized in more detail on slides 21, and 22 of the presentation.
Turning to slide 11 approximately.
Speaker 3: Approximately 97% of our fixed maturity portfolio at quarter end was investment grade rated with an average rating of single A, reflecting our up in quality actions over the past several years.
Approximately 97% of our fixed maturity portfolio at quarter end was investment grade rated with an average rating of single a reflecting our up in quality actions over the past several years.
Speaker 4: In the last 12 months, the allocation to single A rated or higher securities is up 420 basis points, the triple B allocation is down 320 basis points, and the high yield allocation is down 100 basis points.
In the last 12 months the allocation to single a rated or higher securities is up 420 basis points. The triple B allocation is down 320 basis points and the high yield allocation is down 100 basis points.
Speaker 4: For the first two quarters of 2023, we shared additional disclosures on our commercial real estate portfolio. This asset class continues to perform well. We've again included metrics on these investments in slides 23 and 24 of the presentation.
So the first two quarters of 2023, we shared additional disclosures on our commercial real estate portfolio. This asset class continues to perform well.
Again included metrics on these investments in slides 23, and 24 of the presentation.
Turning to slide 12.
Speaker 4: Turning to slide 12, we ended the quarter with a consolidated RBC ratio of 392%. Up six points from second quarter and comfortably above our 375% target.
We ended the quarter with a consolidated RBC ratio of 392% up six points from the second quarter and comfortably above our 375% target.
Speaker 4: Hold code liquidity was $171 million above our target of $105 million.
Holdco liquidity was $171 million above our target of $150 million.
Speaker 4: In the third quarter we expanded the sale leaseback program announced last quarter resulting in an additional $37 million reduction in non-admitted assets and corresponding increase in total adjusted capital. Turning to slide 13.
In the third quarter, we expanded the sale leaseback program announced last quarter, resulting in an additional $37 million reduction in non admitted assets and a corresponding increase in total adjusted capital.
Turning to slide 13.
I would emphasize two things from our updated outlook the midpoint of our projected full year operating EPS ex significant items is unchanged at $2 75.
Speaker 4: The midpoint of our projected full year operating EPS, X significant items is unchanged at 275. And our projected full year excess cash flow to the hold co is now 330 to $350 million, which includes the impact of the intercompany reinsurance treaty with our new Bermuda affiliates.
Our projected full year excess cash flow to the holdco.
Now $330 million to $350 million, which includes the impact of the inter company reinsurance treaty with our new Bermuda affiliate.
Speaker 4: Before turning it back to Gary, I just like to take a moment to recognize my colleague and the company's longtime chief accounting officer, John Klein.
Before turning it back to Gary I'd, just like to take a moment to recognize my colleague in the company's long time, Chief Accounting Officer, John Kline.
Speaker 4: As previously disclosed, John will be retiring at the end of this year. And consequently, this is our last financial close with John as CAO.
As previously disclosed John will be retiring at the end of this year and consequently, this is our last financial close with John as CFO.
Speaker 4: He has been a valued partner, advisor, and mentor to many of us at CNO over the years. I am not alone in recognizing that his leadership, professional expertise, and integrity will have a lasting impact on the company long after he retired.
He has been a valued partner advisor and mentor to many of us at <unk> over the years I am not alone in recognizing that his leadership professional expertise and integrity.
Have a lasting impact on the company long after he retires.
Speaker 4: We are also delighted to welcome Mickey Wilden to C&O. Mickey is an experienced leader in the industry and will succeed John as CAO in January . And with that, I'll turn it back to Gary.
We're also delighted to welcome Mickey Willden to CFO.
Mickey is an experienced leader in the industry and will succeed John as CEO in January.
And with that I'll turn it back to Gary.
Yeah.
Thanks, Paul.
Speaker 3: We continue to be pleased with our strong performance and the steady execution against our strategic priorities. The fourth quarter is.
We continue to be pleased with our strong performance and the steady execution against our strategic priorities.
The fourth quarter is a critical period for our business for.
Speaker 3: For the consumer division, it is the Medicare Annual Enrollment Period. For the workside division, most employers conduct their employee benefits enrollments from October through December . We expect-
The consumer division it is the Medicare annual enrollment period for the <unk>.
Worksite Division most employers conduct their employee benefits enrollment from October through December.
We expect to end the year strong.
Speaker 3: C&O's growth and shareholder return opportunity remain compelling.
Sandoz growth and shareholder return opportunity remains compelling.
Speaker 3: Our sales production continues to generate balanced growth across our businesses and across our product.
Our sales production continues to generate balanced growth across our businesses and across our product lines.
Our balance sheet financial flexibility is strong as reflected in our solid capital position.
Entering the fourth quarter and looking ahead to 2024, we remain confident in our ability to execute on our strategy to serve middle income America.
Speaker 3: Entering the fourth quarter and looking ahead to 2024, we remain confident in our ability to execute on our strategy to serve middle-income America, enhance customer value, drive profitable growth.
Enhanced customer value.
Drive profitable growth and.
And deliver shareholder value.
Speaker 3: We thank you for your support of and interest in CNO Financial Group. We will now open it up for questions.
We thank you for your support of and interest in <unk> Financial Group, We will now open it up for questions operator.
Thank you as a reminder, if you'd like to register an audio question. Please press star followed by one on your telephone keypad. If you change your mind. Please press star followed by two am please ensure you're on mute when speaking.
Speaker 1: Thank you. As a reminder, if you'd like to register an audio question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two and please ensure you're unmuted when speaking.
Speaker 1: first question comes from Ryan Kruger of Stafel. To begin, Ryan please go ahead.
Our first question comes from Ryan Krueger of Stifel to begin Brian. Please go ahead.
Speaker 4: Hey, thanks. Good morning. My first question was on use of excess capital. I guess now that your pre-cashable guidance for the year increased by $150 million following the permuda approvals, can you give any sense of, how do you expect it to return that excess capital and what sort of timing you'd be thinking of?
Hey, Thanks. Good morning. My first question was on use of excess capital I guess now that you're.
Free cash flow guidance for the year increased by $150 million. Following the Bermuda approval can you give any sense of how you would expect to return.
This capital and what sort of timing you'd be thinking of.
Sure Good morning, Ryan as Paul So how do we think about the deployment of excess capital is not changed.
Speaker 4: Sure. Good morning, Ryan. It's Paul. So, you know, how we think about the deployment of excess capital has not changed. Certainly, the Bermuda Reinsurance Treaty increases the amount of excess capital that will sit at the hold co and that in turn increases the amount of share repurchase capacity. So that you know that sort of landscape has changed in that way. But the way we think about deployment hasn't changed at all.
Certainly the Bermuda reinsurance treaty increases the amount of excess capital that will sit at the holdco.
And that in turn increases the amount of share repurchase capacity.
So that.
That sort of landscape has changed in that way, but the way, we think about deployment hasnt changed at all.
Got it thanks and then.
Speaker 3: Think about the level of pre-taspile you'd expect to generate beyond this year. I don't know if it may just pre-taspile as a percentage of gap or earnings or something along those lines, but just trying to think through.
You have to think about.
The level of free cash flow you'd expect to generate beyond this year I don't know.
If maybe free cash flow as a percentage of GAAP earnings or something along those lines, but just trying to think through that.
Speaker 2: I think there should be some ongoing benefit of seeing business to permute any color you can help us with there.
I think there should be some ongoing benefit of ceding business to Bermuda any color you can help us with there.
Sure.
Speaker 4: So certainly there will be a benefit.
Certainly there will be.
Benefit.
Yes.
Speaker 4: on some capital relief on the FIA new business that we'll see to the, from you to company. You know, I could give you a number for that in isolation, but there are so many puts and takes that what I'd prefer to do is provide.
On the some capital relief on the.
<unk> added new business that we will see to the Bermuda company.
I could give you a number for that.
In isolation.
<unk>, but there are so many puts and takes that what I'd prefer to do is provide.
Speaker 4: Um, an outlook for free cash flow for the full year 2024. On our 4th quarter earnings call when we'll provide an outlook. Uh, you know, more broadly for for 2024.
And outlook for free cash flow for the full year 2024.
Our fourth quarter earnings call when we will provide an outlook.
More broadly for 2024.
Speaker 4: And that pre-cash flow, how local include the impact of...
That free cash flow outlook will include the impact of of.
Speaker 4: of the Bermuda Treaty on the new FIA business.
Bermuda Treaty on the new FIA business.
Understood that makes sense. Thank you.
Mhm.
Our next question comes from Scott <unk> of RBC scope. The line is yours.
Speaker 1: Our next question comes from Scott G. Heleniak of RBC. Scott, the line is yours.
Speaker 5: Thanks. I just wanted to ask a couple quick questions on the health business. We're about five weeks into the fourth quarter and you saw some moderation, the claims experience and the LTC and the Medicare supplement. And just wondering if you can give a little bit of an update and what you're seeing kind of in the fourth quarter versus Q3. Are you seeing similar trends or is there any moderation or anything that's really changed at all?
Thanks, I just wanted to ask a couple of quick questions on the.
The health business, we're about five weeks into the fourth quarter and you saw some moderation in the claims experience.
LTC in the Medicare supplement and I'm, just wondering if you could give a little bit of an update on what youre seeing kind of in the fourth quarter versus Q3 and are you seeing similar trend or is there any moderation or anything that's really changed at all.
Speaker 4: Good morning, Scott. It's Paul. We haven't seen anything that would suggest a change in the trends. We had a little bit of a spike in the second quarter. We thought that was temporary and would rebound in the second half. We indeed saw that in the third quarter and our expectation is that that generally continues.
Good morning, Scott, It's Paul we haven't seen anything that would suggest a change in the trends, we had a little bit of a spike in the second quarter.
We thought that.
Was temporary and would rebound in the second half, we indeed saw that in the third quarter and our expectation is with that.
That generally continues.
Okay.
And.
Speaker 3: It sounds like you had a good quarter for the recruiting, and you mentioned a few reasons for that. But just wondering if you can just kind of elaborate on that, how you're able to attract more talent there, and then just if you can marry that up with the comments you made about geographic expansion, and so just kind of what you're doing on the agency side. Yeah, thanks for this question, Scott. This is Gary. I'll give you a couple of answers.
It sounds like you had a good quarter for the recruiting.
<unk>.
You mentioned a few reasons for that.
But just wondering if you can just.
Just kind of elaborate on that how youre able to attract more talent there and then.
If you could if you can marry that up with the comments you made about geographic expansion and so just kind of what youre doing on the agency side.
Yes. Thanks, Thanks for those questions Scott This is Gary.
I'll give you a couple of answers.
First the short answer on the agent recruiting efforts. These are things that we've been working on for many years, we've been implementing and experimenting with different support programs with recruiting programs with different training programs and we've continued to refine our model over many years.
Speaker 3: These are things that we've been working on for many years. We've been implementing and experimenting with different support programs, with different recruiting programs, with different training programs.
Speaker 3: And we've continued to refine our model over many years so that what we're presenting to agents is a true career path where they can start as an insurance agent selling life insurance and or medical supplement as an example, and then evolve into becoming a true financial advisor.
So that what we're presenting to agents as a true career path, where they can start as an insurance agent selling life insurance and medical Medicare supplement as an example, and then evolve into becoming a true financial adviser and and can be honest I can't give you one thing we've done or even two or three things. We've done we've done tens if not dozens of <unk>.
Speaker 3: And to be honest, I can't give you one thing we've done or even two or three things we've done. We've done tens, if not dozens of small things, to build this into a more attractive offering where they're supported and trained and so on. So that has continued and that's what got us through the pandemic, frankly, and you saw the productivity.
Small things to build this into a more attractive offering where they are supported in training and so on.
So that has continued and that's what got us through the pandemic frankly, and you saw the productivity.
Speaker 3: The other thing that we have going for us right now and and I say that with I guess some
The other thing that we have going for us right now.
That would I guess some.
Speaker 3: Cadillac, when the economy saws him.
Caveat.
When the economy softens.
Speaker 3: Typically, a career path like ours is open for more people to consider trying to make a change. So we're benefiting to some extent from some of that. Now, I know employment has remained strong, but I think it's the collection of factors what people are looking at out there in the economy, what we're able to offer in terms of a career path in support and training and so on. And all of those things are coming together very nicely.
Typically.
Career path like ours is open for more people to consider try it trying to make a change. So we're benefiting to some extent from some of that now I know employment has remained strong but I think it's the collection of factors what people are looking at out there in the economy, what we're able to offer in terms of career pathing support and training and so on and all of those things are key.
<unk> together very nicely for us.
Speaker 6: So I'm really proud in the team. I mean, the recruiting that they've done on both the work site and the consumer side on the insurance sales has really been exceptional. And I'm just thrilled with how well we're doing with keeping those talented people as part of the organization and growing them.
Im really proud of the team I mean recruiting that they've done on both the work site and on the consumer side on the insurance sales has really been exceptional and I'm just thrilled with with how well we're doing with keeping those talented people as part of the organization and growing them.
Hopefully that helps.
Speaker 5: Yeah, that makes it anything to offer on the geographic expansion, is that just not a new just.
Yes that makes sense and anything to offer on the geographic expansion is that is that just.
Nothing new.
Speaker 6: Any more? Yeah, there's a fair bit there that's new. I believe that comment or where that was in our script was referring to the work site business.
Anymore.
Theres a fair bit there thats, new that was I believe that comment or where that was in our script was referring to the worksite business and our Worksite has historically been more concentrated in farming or rural communities and we see an opportunity to continue to expand that excuse me I should say the captive agent that supports that side was historically more concentrate.
Speaker 6: And our work site has historically been more concentrated in farming or rural communities, and we see an opportunity to continue to expand that. Excuse me, I should say, the cap of age that supports that site was historically more concentrated there, and we're continuing to grow that. So in the work site business, we see more opportunities in other geographies that we're definitely pushing into that.
There and we're continuing to grow that so in the Worksite business, we see more opportunities in other geographies that we are definitely pushing into that.
Speaker 6: And again, leadership team there has really done a wonderful job.
And again the leadership team there has really done a wonderful job.
Yeah that's helpful. Thanks.
Speaker 1: Our next question comes from John Barnage of Piper Sanna. John , please go ahead.
Our next question comes from John Barnidge of Piper Sandler John Please go ahead.
Good morning, Thanks, a lot I appreciate the opportunity my questions around guidance can you maybe talk about the bridge in earnings as we think about 70 <unk> ex notables to the fourth quarter I know there's volatility around fee income.
Speaker 5: Good morning, thanks a lot. Appreciate the opportunity. My questions around guidance. Can you maybe talk about the bridge and earrings as we think about 70, 4 cents, ex-notables to the fourth quarter? I know there's volatility around CNCUM, investment income, not allocated to product lines. So curious if you could provide some help there. Thank you.
Investment income allocated to product lines. So curious if you could provide some help there. Thank you.
Sure Good morning, John It's Paul.
Speaker 4: So I would point to two things. Number one expenses are seasonally lower in the fourth quarter fee income, as you mentioned, is heavily weighted to the fourth quarter. And that's an driven by Met Advantage. And that's a business that we've been investing and growing. Gary gave you some data points on that in his in his remarks.
So.
I would point to two things number one expenses are seasonally lower in the fourth quarter.
Fee income as you mentioned is heavily weighted to the fourth quarter and and Thats.
Driven by Med advantage and that's a business that we've been investing in growing Gary gave you. Some some data points on that and is.
In his remarks.
Speaker 4: And then we're assuming some modest, continued sequential improvement in NII not allocated.
And then we're assuming some modest continued sequential improvement in NII not allocated.
Speaker 4: So it's really those three things that I would emphasize, as you tried to bridge from Q3 to Q4 and get to the midpoint of our guidance for the whole year.
So it's really those three things that I.
I would emphasize as you try to bridge from from Q3 to Q4 and get to the midpoint of our guidance for the full year.
Speaker 7: Thank you for that color. I appreciate it. And my follow up, there's been some comments, at least from retailers about the impact of GLP one or obesity medication. How do you think about that specifically for the health long term care and life insurance parts of your business? Thank you.
Thank you for that color I appreciate it and my follow up there's been some comments at least from retailers about the impact of DLP, one or obesity medication. How do you think about that specifically here for the health long term care and life insurance parts of your business. Thank you.
Speaker 3: You know, I'll make a broad comment there, John , you know, I, I can't offer you a specific analysis that we've done in terms of looking at what the impacts will be. We don't have that. So let me be forthcoming about that. If I can, I'll step back though and speak more generically as a general rule. Anything that improves the health of consumers is good for our.
I'll make a broad comment there John.
I can't offer you a specific analysis that we've done.
In terms of looking at what the impacts will be we don't have to absolutely be forthcoming about that if I can I'll step back, though and speak more generically.
As a general rule anything that improves the health of consumers and good for our business, we like it when our consumers are healthier they have fewer health claim we like it when they live longer they pay their life insurance premiums for more years.
Speaker 6: We like it when our consumers are healthier. They have fewer health claims. We like it when they live longer. They pay their life insurance premiums for more years. And we like it even in our new-odd business because those are thinking about longer lifespan. They're planning for that and it helps our retirement.
And we like it even in our annuity business because of their thinking about longer lifespans are planning for that and it helps our retirement business. So our general view is anything that makes for a healthier America healthier American consumer is good for our business, we like that.
Speaker 3: So our general view is anything that makes for a healthy or America, or a healthy or American consumer is good for our business. We like that. At least based on the data that I've seen, the net benefits are positive. My understanding is that these drugs help people avoid heart conditions. They help them avoid obesity. They help them avoid diabetes.
At least based on the data that I've seen the net benefits or positive my understanding is that these drugs help people avoid heart conditions. They help them avoid obesity that help them avoid diabetes.
Speaker 6: All of those things result in fewer claims and a healthier life. So we think long term it's going to be good for our business. I'm not a medical expert. We don't have the analysis on what the long term consequences are. But even on the long term aspects, my understanding is many of these drugs.
All of those things result in fewer claims in a healthier lives. So we think long term, it's going to be good for our business.
Not a medical expert we don't have the analysis on what the long term consequences are but even on the long term aspects of my understanding is many of these drugs, albeit in the diabetes contracts had been used for quite some time. So there is a bit of a track record on many of these drugs and so we think it's a good thing.
Speaker 3: I'll be in the diabetes context. I've been used for quite some time.
Speaker 4: So there is a bit of a track record on many of these drugs. And so we think it's a good thing. Time will tell, but that's how we view it.
Time will tell.
That's how we view it.
I appreciate it thanks a lot.
Speaker 1: As a reminder, that star followed by one to register a question. Our next question comes from Sunita Kamath of Jeffries. Sunita, please go away.
As a reminder, that star followed by one to register a question. Our next question comes from Sydney to come off of Jefferies. Please.
Please go ahead.
Speaker 6: Thanks. Good morning. Just looking at your scorecard, your annuities collected premium, sort of flatish year over year. And I think you had some comments in your script about your distribution model being different, which I understand. But as we think about the rate environment now, it seems like a pretty attractive opportunity. How do you see annuity collected premiums sort of developing as we move into fourth quarter, but also 2024?
Thanks, Good morning.
Just looking at your scorecard your annuities collected premium sort of flattish year over year and I think you had some comments in your script about your.
Distribution model being different which I understand but as we think about the rate environment now it seems like a pretty attractive opportunity. How do you see the annuity collected premiums sort of developing as we move into fourth quarter, but also 2024.
Speaker 3: Yeah, let me first comment on just what you saw in terms of results. Typically, you'll see annuity volumes are interested, annuities fluctuate depending on what's happening with the average consumers belief in interest rates and or stock markets. So we see that bumping around, and this time is no exception. I do want to emphasize a couple.
Yes, let me first comment on just what you saw in terms of results typically.
Youll see annuity volumes or interest in annuities fluctuate depending on what's happening with the average consumers belief in interest rates and or stock market.
We see that bumping around at this time is no exception I do want to emphasize a couple of things the nature of our model because we have captive distribution and the way those agents are compensated and managed.
Speaker 6: The nature of our model, because we have captive distribution in the way those agents are compensated and managed, we feel like we have a better chance of reducing churn.
We feel like we have a better chance of reducing churn and other types of things that long term are not beneficial. So we feel good about persistency and so on more to the point when we look at actual experience in terms of persistency and the consumers were bringing on all of this is within expected ranges. So we don't see any.
Speaker 6: and other types of things that long-term are not beneficial. So we feel good about our persistency and so on.
Speaker 3: more to the point when we look at actual experience.
Speaker 6: in terms of persistency and the consumers we're bringing on. All of this is with an expected range. So we don't see any area for concern here. We think that the annuity business will continue to be healthy and continue to be attractive to our middle income.
Area for concern here.
We think that the annuity business will continue to be healthy and continue to be attractive to our middle income consumers.
Speaker 6: And, you know, we'll have a quarter here or there that's up or down, but we feel really good about the aggregate opportunity. Well, do you want to add any color to that?
And we will have a quarter here or there that's up or down, but we feel really good about the aggregate opportunity. Paul do you want to add any any color to that.
No I think that covers it well.
Speaker 3: Okay, and then sort of relatedly, I think what you said in your script when you're talking about spreads, it sounded to me that maybe spreads have sort of stopped expanding here and we should expect them to be somewhat stable ahead. Is that the right read based on what you said?
Okay, and then sort of Relatedly I think what you said in your script when Youre talking about spreads it sounded to me that maybe spreads have sort of stopped expanding here and we should expect them to be somewhat stable ahead is that the right read based on what you said.
Speaker 4: Yeah, I think that's fair, Sunita. I mean, basically what's happening is that we have...
Yes, I think Thats fair I mean, basically what's happening is that.
We have.
Speaker 4: We enjoy some wider spreads and some of the older issuances somewhat narrower spread on some of the newer issuances.
We enjoyed some some wider spreads on some of the older.
Issuances.
Somewhat narrower spread on some of the newer issuances.
Speaker 4: And as you have some of the older dishes who's run off or surrender.
And as you have some of the older issuances runoff for surrender.
Hugh.
Speaker 4: You have that year over year comparison. But I think it's important to emphasize that, although the spreads can track that a little bit, they're still well within our pricing targets and return targets.
Have that year over year.
Comparison.
I think it's important to emphasize that although the spreads have contracted a little bit they are still well within our.
Pricing targets and return targets.
Speaker 7: If I could just sneak one more in, just follow up to John's question on the unallocated ViI. Can you just provide a little bit more color on what you're expecting for Q? Is it sort of back to normal or just anything there would be helpful?
Got it if I could just sneak one more in just a follow up to John's question on the unallocated VII can.
Can you just provide a little bit more color on what you're expecting for <unk> is it sort of back to normal or just anything there would be helpful.
Speaker 4: Sure. So, you know, a component of our NII not allocated is our alternative investments. And in the quarter, the third quarter, they generated an annualized return of about 4.6 percent.
Sure so.
A component of our NII not allocated as our alternative investments and in the quarter or the third quarter.
It generated an annualized return of about four 6%.
Speaker 4: So significant sequential improvement, but our long-term sort of run rate expectation for that portfolio is closer to nothing.
A significant sequential improvement but.
Our long term sort of run rate expectation for that.
Portfolio is closer to 9%.
Speaker 4: But that's one component of NII not allocated other elements of it made up some of that difference.
But thats one component of.
NII not allocated other elements of it.
Made up some of that difference.
Speaker 4: the FHLB program in particular. So as I mentioned a moment ago, our expectation for NII not allocated in total sequentially from Q3 to Q4, we'd expect a fixed early modest improvement relative to our full year EPS guys.
Shelby program in particular.
So as I as I mentioned, a moment ago, our expectation for NII not allocated in total sequentially from Q3 to Q4.
We would expect a fairly modest improvement relative to our full year EPS guidance.
Okay. Thanks.
Speaker 1: As there are no additional questions right at this time, I'd like to turn the conference call back over to Adam Orville for closing remarks.
As there are no additional questions at this time I'd like to turn the conference call back over to Adam Auvil for closing remarks.
Speaker 2: Thank you, Operator, and thank you all for participating in today's call. Please reach out to the Investor Relations team if you have any further questions. Have a great rest of your day.
Thank you operator, and thank you all for participating participating in today's call. Please reach out to the Investor Relations team. If you have any further questions have a great rest of your day.
Yes.
Speaker 1: Ladies and gentlemen, this concludes today's CNO financial group third quarter 20-23 earnings call. Thank you for joining. You may now disconnect your lines.
Ladies and gentlemen, this concludes today's <unk> financial group third quarter 2020 free earnings call. Thank you for joining you may now disconnect your lines.
[music].
Speaker 8: No.