Q1 2025 CNO Financial Group Inc Earnings Call
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Adam Auvil: Good morning all and thank you for joining us for the CNO Financial Group first quarter 2025 earnings call.
Good morning, and thank you for joining us for the <unk> Financial group first quarter 2025 earnings call. My name is call. It I will be coordinating the call today. If you go search to your question. During the call you can do so by pressing star Philip by one telephone keypad and Cemig, because that's a lot of questioning stuff, let's see.
Carly: My name is Carly and I'll be coordinating the call today. If you'd like to register a question during the call, you can do so by pressing star followed by one on your telephone keypad and submitting a self-reported line of questioning will be star followed by two.
Adam Auvil: I'd now like to hand over to our host, Adam Auvil. The floor is yours. Good morning. Thank you for joining us on CNO Financial Group's first quarter 2025 earnings conference call. Today's presentation will include remarks from Gary Bhojwani, Chief Executive Officer, 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 yesterday's press release. You can obtain the release by visiting the media section of our website at cnoinc.com. This morning's presentation is also available in the Investors section of our website and was filed into Form 8K yesterday.
Adam: I've not heard of over to our host Adam over the floor is yours.
Adam: Good morning, Thank you for joining us on <unk> financial group's first quarter 2025 earnings conference call.
Gary: Today's presentation will include remarks from Gary <unk>, Chief Executive Officer, Paul Mcdonough, Chief Financial Officer.
Gary: Following the presentation. We will also have other business leaders available for the question and answer period.
Gary: 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.
Gary: I N C dot com.
Gary: Earnings presentation is also available in the investors section of our website and was filed in a form 8-K yesterday.
Gary: Okay.
Adam Auvil: Let me remind you that any forward-looking statements we make today are subject to a number of factors which may cause actual results to be materially different than those contemplated by the forward-looking statement. Today's presentation contains a number of non-GAAP measures, which should not be considered as substitutes for the most directly comparable GAAP measures. You'll find a reconciliation of the non-GAAP measures to the corresponding GAAP measures in the appendix. Throughout the presentations, we'll be making performance comparisons, and unless otherwise specified, any comparisons made will refer to changes between first quarter 2025 and first quarter 2024.
Gary: 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.
Gary: Today's presentation contains a number of non-GAAP measures, which should not be considered as substitutes for the most directly comparable GAAP measures you can find a reconciliation of the non-GAAP measures to the corresponding GAAP measures in the appendix.
Gary: Throughout the presentations will be making performance comparisons and unless otherwise specified any comparisons made will be.
Gary: Refer to changes between first quarter of 2025 in the first quarter 2024, and with that I'll turn the call over to Gary.
Gary Bhojwani: And with that, I'll turn the call over to Gary. Good morning, everyone, and thank you for joining. CNO is off to a solid start in the quarter, building on strong 2024 performance. Our first quarter results enable us to reaffirm our full year 2025 and three-year ROE guidance. Operating earnings per diluted share were $0.79, up 52%, and $0.74, up 42%, excluding significant items. Our first quarter performance reinforces our commitment to grow earnings while improving profitability. CNO also delivered our 11th consecutive quarter of strong sales momentum and our 9th consecutive quarter of growth in producing agent count.
Gary: Good morning, everyone and thank you for joining us.
Gary: <unk> is off to a solid start in the quarter building on strong 2020 for performance.
Gary: Our first quarter results enable us to reaffirm our full year 2025, and three year ROE guidance op.
Operating earnings per diluted share were <unk> 79 up 50.
Gary: 52%.
Gary: 74 cents up 42%.
Gary: Excluding significant items.
Gary: Our first quarter performance reinforces our commitment to grow earnings while improving profitability.
Gary: <unk> also delivered our 11th consecutive quarter of strong sales momentum and our ninth consecutive quarter of growth in producing agent count.
Gary Bhojwani: I'll cover these results in more detail in each division's comments. Earnings continue to benefit from favorable insurance product margins and strong investment results reflecting growth in the business and expansion of the portfolio. New money rates have exceeded 6% for nine consecutive quarters. Capital and Liquidity remain well above target levels after returning $117 million to shareholders.
Gary: I'll cover these results in more detail in each division's comments.
Gary: <unk> continues to benefit from favorable insurance product margin and strong investment results, reflecting growth in the business and expansion of the portfolio book yield.
Gary: New money rates have exceeded 6% for nine consecutive quarters now.
Gary: Capital and liquidity remained well above target levels after returning $117 million to shareholders.
Gary Bhojwani: Book value per diluted share excluding AOCI was $3,703, up 6%.
Gary: Book value per diluted share, excluding OCI was $37 three up 6%.
Gary Bhojwani: Paul will go into greater detail on our financial performance. Most importantly, the core areas of our business continue to perform well, including production. agent force metrics. Policy Holder Persistence. Underwriting Margin, Capital Management, and Overall Investment Management. Visibility into macroeconomic drivers such as interest rates is deteriorating. However, our track record demonstrates our ability to navigate volatility.
Gary: Paul will go into greater detail on our financial performance.
Paul: Most importantly, the core areas of our business continue to perform well including production.
Paul: Agent force metrics policyholder persistency.
Paul: Underwriting margin capital management.
Paul: And overall investment management.
Paul: Visibility into macroeconomic drivers such as interest rates is deteriorating.
Paul: However, our track record demonstrates our ability to navigate volatility.
Gary Bhojwani: As we look to the balance of the year, we remain squarely focused on leveraging our business model to enable sustained profitable growth, executing on our strategic priorities, and driving ROE spending.
Paul: As we look to the balance of the year, we remain squarely focused on leveraging our business model to enable sustained profitable growth.
Paul: Executing on our strategic priorities and driving ROE expansion.
Gary Bhojwani: Turning to slide five. All but one of our growth scorecard metrics were up for the quarter. As a reminder, our growth scorecard focuses on three key drivers of our performance, production, Distribution, and Investments in Capital. I'll discuss each division in the next two slides.
Paul: Turning to slide five.
Paul: All but one of our growth scorecard metrics were up for the quarter. As a reminder, our growth scorecard focuses on three key drivers of our performance production.
Paul: Distribution and investments and capital.
Paul: I'll discuss each division in the next two slides Paul will cover investments in capital in more detail during his remarks.
Gary Bhojwani: Paul will cover investments in capital in more detail during his... beginning with the consumer division on slide. The Consumer Division posted another solid start. Our capabilities to reach the underserved middle income market remain a key differentiator for our consumer business. We marry a virtual connection with local agents who deliver the last mile of sales and service to build lasting relationships with our customers. This personal interaction is especially valuable to customers during times of uncertainty and market volatility. Our agents maintain positive sales momentum in the quarter with financial and health products continuing their consistent, strong performance.
Paul: Beginning with the consumer division on slide six.
Paul: The consumer division posted another solid start to the year.
Paul: Our capabilities to reach the underserved middle income market remain a key differentiator for our consumer business.
Paul: We marry a virtual connection with local agents, who deliver the last mile of sales and service to build lasting relationships with our customers.
Paul: This personal interaction is especially valuable to customers during times of uncertainty and market [laughter] market volatility.
Paul: Our agents maintained positive sales momentum in the quarter with financial and health products, continuing the consistent strong performance.
Gary Bhojwani: annuity collected premiums were up 12. our seventh consecutive quarter of growth. Account values were up 7% and premium per policy was up 19%. Our strong annuity performance comes on the heels of a record 2024. Our captive distribution and the long-term relationships that our agents build with their clients enable stability in our block of business. We delivered our eighth consecutive quarter of brokerage and advisory. Client assets and brokerage and advisory were up 16% for the quarter. New accounts were up 13% and average account size was up 3%. Persistency remains strong with our investment clients. When combined with our annuity account values, our clients now entrust us with more than $16 billion of their assets, up 9%.
Paul: Annuity collected premiums were up 12%, our seventh consecutive quarter of growth.
Paul: Account values were up 7% and premium per policy was up 19% our strong annuity performance comes on the heels of a record 2024.
Paul: Our captive distribution and our long term relationships that our agents build.
Paul: With their clients enable stability in our block of business.
Paul: We delivered our eighth consecutive quarter of brokerage and advisory group.
Paul: Client assets and brokerage and advisory were up 16% for the quarter.
Paul: New accounts were up 13% and average account size was up 3%.
Paul: Persistency remained strong with our investment clients.
Paul: When combined with our annuity account values, our clients now entrust us with more than $16 billion of their assets up 9%.
Gary Bhojwani: Sustained growth in brokerage and advisory and annuities reflects a critical but largely unmet need within our market for retirement income solutions. It has long been our position that middle income customers need and deserve access to professional guidance and retirement products, as do more affluent customers. We continue to consider it a great privilege to serve this market.
Paul: Sustained growth in brokerage and advisory and annuities reflects a critical but largely unmet need within our market for retirement income solutions.
Paul: It has long been our position that middle income customers need and deserve access to professional guidance and retirement products as do more affluent customers.
Paul: We continue to consider it a great privilege to serve this market.
Gary Bhojwani: Total NAP was flat for the quarter. HealthNAP was up 9% the 11th consecutive quarter. Supplemental Hennel SNAP was up eight. Sustained growth in our health results demonstrates strong consumer demand for ways to cover out-of-pocket gaps in medical coverage and safeguard against the growing cost of health. Our Medicare portfolio continues to deliver strong sales. Medicare Supplement NAF was up 24% and Medicare Advantage policies were up 42%. Recall that Medicare Advantage sales are not reflected in math. As a reminder, we manufacture MetSup products and distribute MA policies from third-party carriers. This strategic choice to optimize our Medicare portfolio, adds balance and diversification, and enables us to offer more coverage options for our customers' healthcare needs.
Paul: Total nap was flat for the quarter.
Paul: Health Nap was up 9% the 11th consecutive quarter of growth.
Paul: Supplemental health Nap was up 8%.
Paul: Sustained growth in our health results demonstrate strong consumer demand for ways to cover out of pocket gaps in medical coverage and safeguard against the growing cost of health care.
Paul: Our Medicare portfolio continues to deliver strong sales growth.
Paul: Medicare supplement nap was up 24% and Medicare advantage policies were up 42%.
Paul: Recall that Medicare advantage sales are not reflected in math.
Paul: As a reminder, we manufacturer med sup products and distribute MA policies from third party carriers.
Paul: The strategic choice to optimize our Medicare portfolio add balance and diversification and enables us to offer more coverage options for our customers health care needs.
Gary Bhojwani: With more than 11,000 people in the U.S. turning 65 every day, Medicare is a year-round business. Persistency in both MedSup and MedAdvantage continues to benefit from the client relationships our agents establish. Long term care NAP was down in the quarter on a strong comparable as the current product first launched in late 2020. Long-term care remains a strong product in our portfolio and fills a critical retirement care need. we continue to see a growing need for practical long-term care solutions within our target market. Life production was down in the quarter, primarily driven by lower lead volumes in our direct-to-consumer business.
Paul: With more than 11000 people in the U S. Turning 65 every day Medicare as a year round business, we're seeing persistency in both med sup and med advantage continues to benefit from the client relationships are agents established.
Paul: Long term care nap was down in the quarter on a strong comparable as the current product first launched in late 2023.
Paul: Long term care remains a strong product in our portfolio and fills a critical retirement Karen.
Paul: We continue to see a growing need for practical long term care solutions within our target market.
Paul: Life production was down in the quarter, primarily driven by lower lead volumes in our direct to consumer business lower D to C leads were due in part to elevated television advertising costs and an intentional pullback in marketing spend to optimize production with expense.
Gary Bhojwani: Lower D to C leads were due in part to elevated TV advertising costs and an intentional pullback in marketing spend to optimize production with expense. This seasonal fluctuation is consistent with previous first quarter results following the presidential election.
Paul: This seasonal fluctuation is consistent with previous first quarter results following the presidential election.
Gary Bhojwani: Our second quarter results will confirm if the prior trend. Over the last several years, we have proactively diversified our non-television direct marketing to include more web and digital channels. Web and digital now account for over 36% of sales generated by D2C leads, up 28% year over year. Looking ahead, we remain confident in our ability to generate direct-to-consumer sales at an attractive rate of We continue to see long-term value in our diversified and integrated approach to reach middle-income consumers.
Paul: Our second quarter results will confirm if the prior trend per se.
Paul: Over the last several years, we are proactively diversified our non TV direct marketing to include more web and digital channels web and digital now accounts for over 36% of sales generated by D to C leads up 28% year over year.
Paul: Looking ahead, we remain confident in our ability to generate direct to consumer sales at an attractive rate of return.
Paul: We continue to see long term value in our diversified and integrated approach to reach middle income consumers.
Gary Bhojwani: Finally, producing agent count was up 2%, marking our ninth consecutive quarter of growth. Our customers look for technology to supplement, not replace, human interaction. Investments in technology continue to enable customer experience and drive operations. Accelerated underwriting on a portion of our Simplified Life products remains a prime example. It delivered an 87% instant decision rate on submitted policies in the quarter, up 11% over fourth quarter 2020.
Paul: Finally, producing agent count was up 2%, marking our ninth consecutive quarter of growth.
Paul: Our customers look for technology to supplement not replace human interaction investments in technology continue to enable customer experience and drive operational efficiency.
Accelerated underwriting on a portion of our simplified life products remains a prime example.
Paul: It delivered an 87% instant decision rate on submitted policies in the quarter up 11% over fourth quarter 2024.
Gary Bhojwani: Next, slide seven in our worksite division. Our worksite division is also off to a solid start. worksite insurance sales were up 11% our 12th consecutive quarter.
Paul: Next slide seven and our Worksite Division performance.
Paul: Our Worksite Division is also off to a solid start to the year.
Paul: Worksite insurance sales were up 11%, our 12th consecutive quarter of growth highlights included.
Gary Bhojwani: Highlights included. Critical Illness Insurance up 37%, Life Insurance up 17%, and Accident Insurance up 4%. A critical illness product was launched in the fall of 2023 and still shows strong momentum. We have also experienced steady growth in life sales, which now make up 28% of our total worksite insurance.
Paul: Critical illness insurance up 37% life insurance up 17% and accident insurance up 4%.
Paul: Critical illness product was launched in the fall of 2023 and still show strong momentum.
Paul: We have also experienced steady growth in life sales, which now make up 28% of our total worksite insurance sales.
Gary Bhojwani: Strategic Growth Initiatives also contributed significantly to our worksite NAP performance. Our Geographic Expansion Initiative delivered 32% of the NAP growth in the quarter. This is the sixth consecutive quarter of growth generated by this program. NAP from new group clients was up 134%. As a reminder, this program helps agents cultivate and acquire new employer groups for insurance sales. Producing agent count was up 8%, marking our 11th consecutive quarter of growth. Agent productivity was up 10%.
Paul: Strategic growth initiatives also contributed significantly to our Worksite nap performance, our geographic expansion initiatives delivered 32% of the nap growth in the quarter. This is the sixth consecutive quarter of growth generated by this program.
Paul: Knapp from New group clients was up 134%.
Paul: As a reminder, this program helps agents cultivate and acquire new employer groups or insurance sales.
Paul: Producing agent count was up 8%, marking our 11th consecutive quarter of growth.
Paul: Productivity was up 10%.
Gary Bhojwani: Over the past year, our worksite leadership team has implemented new training and sales technology tools to enhance our agent experience and productivity. We expect these programs to further bolster the attractiveness of the strong career opportunity we offer.
Paul: Over the past year, our Worksite leadership team has implemented new training and sales technology tools to enhance our agent experience and productivity.
Paul: We expect these programs to further bolster the attractiveness of the strong career opportunity we offer.
Gary Bhojwani: Fee sales were down for the quarter off a small base. The first quarter is historically a life-selling period for our worksite fee product. We expect to see improvement in the 2nd and 3rd quarters.
Paul: These sales were down for the quarter off a small base.
Paul: The first quarter is historically, a light selling period for our worksite fee products.
Paul: We expect to see improvement in the second and third quarters.
Gary Bhojwani: In late February, we introduced a new product called Optivise Clear. Optivise Clear enhances our services offerings in three ways. It brings together our benefits, advocacy, education, and employee communications services into a single package for employers. Second, it adds new capabilities, such as our new Medicare Advocacy Services. And finally, It offers an enhanced technology experience to help make it easier for employees to navigate their benefits. Optivise Clear can be purchased as a stand-alone product or in combination with our benefits administration technology and voluntary insurance benefits. Early feedback from our brokers and clients has been positive.
Paul: In late February we introduced a new product called optimized clear.
Paul: Optimized clear enhances our services offerings in three ways.
Paul: It brings together our benefits advocacy education and employee communications services into a single package for employers.
Paul: Second it adds new capabilities, such as our new Medicare advocacy services and finally.
Paul: It offers an enhanced technology experience to help make it easier for employees to navigate their benefits.
Paul: Optimize clear can be purchased as a standalone product or in combination with our benefits administration technology and voluntary insurance benefits.
Paul: Early feedback from our brokers and clients has been positive.
Paul Mcdonough: And with that, I'll turn it over to Paul. Thank you, Gary, and good morning, everyone. Turning to the financial highlights on slide eight. Operating earnings per share excluding significant items were up 42% in the quarter, reflecting growth in the business, stable insurance product margins, sustained new money rates above portfolio rates, resulting in increased book yields, Alternative returns still a bit below our long-term run rate expectations, but much improved year over year. And lastly, continued discipline in expense and capital management.
Paul: And with that I'll turn it over to Paul.
Paul: Thank you Gary and good morning, everyone.
Paul: Turning to the financial highlights on slide eight.
Paul: Operating earnings per share excluding significant items were up 42% in the quarter.
Paul: <unk> growth in the business stable insurance products margins sustained new money rates above portfolio rates, resulting in increased book yields alter.
Paul: Alternative returns still a bit below our long term run rate expectations, but much improved year over year.
Paul: And lastly continued disciplined expense and capital management.
Paul Mcdonough: Fee income was adversely impacted in the quarter by ASC 606 Revenue Recognition Accounting for the sale of third-party Medicare Advantage policies by Bankers Life agents in our consumer division. The underlying dynamics of that business are actually quite healthy. As Gary mentioned, the MA policies sold in the quarter increased 42 percent. The accounting rules, however, create volatility in the timing of revenue recognition. I expect the adverse impacts noted in the first quarter of this year to be largely offset by anticipated increases in fee revenue recognition in some future period. We continue to manage our capital and hold co-liquidity targets.
Fee income was adversely impacted in the quarter by ASC 606 revenue recognition accounting for the sale of third party Medicare advantage policies.
Paul: Bankers life agents in our consumer Division.
Paul: The underlying dynamics of that business are actually quite healthy as Gary mentioned, the MA policies sold in the quarter increased 42%.
Gary: The accounting rules, however, create volatility in the timing of revenue recognition.
Gary: I expect the adverse impacts noted in the first quarter of this year to be largely offset by anticipated increases in fee revenue recognition and some future periods.
Gary: We continue to manage our capital and Holdco liquidity targets.
Paul Mcdonough: while in the quarter deploying $100 million of excess capital on share repurchases, contributing to a 7% reduction in weighted average diluted shares outstanding.
Gary: In the quarter deploying $100 million of excess capital and share repurchases.
Gary: Tribute to a 7% reduction in weighted average diluted shares outstanding.
Paul Mcdonough: On a trailing 12-month basis, operating return on equity excluding significant items was 11.9%. Turning to slide nine. The insurance product margin was up across all three product categories and each of the underlying products, with total insurance product margin, excluding significant items, up 8%. The results continue to benefit from growth in the business, solid persistency, and higher investment returns. Turning to slide 10, net investment income remains strong in the quarter. This was the 11th consecutive quarter of growth in book yield and invested assets. The new money rate was 6.43%, the ninth consecutive quarter above 6%. The average yield on allocated investments was 4.87%, up 17 basis points year over year.
Gary: On a trailing 12 month basis operating return on equity excluding significant items was 11, 9%.
Gary: Turning to slide nine.
Gary: Insurance product margin was up across all three product categories.
And each of the underlying products with total insurance product margin excluding significant items.
Gary: 8%.
Gary: The results continue to benefit from growth in the business.
Gary: Solid persistency and higher investment returns.
Gary: Turning to slide 10.
Gary: Net investment income remained strong in the quarter.
Gary: This was the 11th consecutive quarter of growth in book yield and invested assets.
Gary: The new money rate was 643% the ninth consecutive quarter above 6%.
Gary: The average yield unallocated investments was 487% up 17 basis points year over year.
Paul Mcdonough: The increase in yield along with growth in the business drove a 6% increase in net investment income allocated to products for the quarter. investment income not allocated to products was up considerably, primarily due to improved alternative investment income versus the prior year. Total investment income was up 16% for the quarter, marking the sixth consecutive quarter of growth. Our new investments in the quarter comprised approximately $1 billion of assets with an average rating of single A and an average duration of seven years. Our new investments are summarized in more detail on slide 22 of the presentation.
Gary: The increase in yield along with growth in the business drove a 6% increase in net investment income allocated to products for the quarter.
Gary: Investment income not allocated to products was up considerably primarily due to improved alternative investment income versus the prior year.
Gary: Total investment income was up 16% for the quarter, marking the sixth consecutive quarter of growth.
Gary: Our new investments in the quarter comprised approximately $1 billion of assets with an average rating of single a and an average duration of seven years.
Gary: Our new investments are summarized in more detail on slide 22 of the presentation.
Gary: Yeah.
Paul Mcdonough: Turning to slide 11, the market value of invested assets grew 11% in the quarter. with roughly 60% of the increase, the result of growth in the business and market appreciation on the investment portfolio, and the remainder due to recent FABN issuance. Approximately 96% of our fixed maturity portfolio at quarter end was investment grade rated with an average rating of single A, reflecting our up in quality bias over the last several years. Our portfolio is high quality, liquid, and delivering durable results.
Gary: Turning to slide 11.
Gary: The market value of invested assets grew 11% in the quarter.
Gary: With roughly 60% of the increase the result of growth in the business and market appreciation on the investment portfolio and the remainder due to recent fabienne issuances.
Gary: Approximately 96% of our fixed maturity portfolio at quarter end was investment grade rated with an average rating of single a reflecting our up in quality bias over the last several years.
Gary: Our portfolio is high quality liquid and delivering durable results.
Paul Mcdonough: Turning to slide 12. Our capital position remains strong. The quarter end, our consolidated risk-based capital ratio was 379%. Available hold co-liquidity was $250 million, well above our target minimum. Leverage at quarter end was 32.7% as reported. Suggesting for the senior notes that will be paid off at maturity in May of this year, average at quarter end was 26.1% within our target range of 25 to 28%.
Gary: Turning to slide 12.
Gary: Our capital position remains strong.
Gary: At quarter end, our consolidated risk based capital ratio was 379%.
Gary: Available Holdco liquidity was $250 million well above our target minimum.
Gary: Leverage at quarter end was 32, 7% as reported.
Gary: Adjusting for the senior notes that will be paid off at maturity in may of this year.
Gary: Leverage at quarter end was 26, 1% within our target range of 25% to 28%.
Paul Mcdonough: Turning to slide 13 in our 2025 guidance. As Gary mentioned, we are reaffirming all guidance announced in February as summarized on this slide. Certainly, economic conditions today are more volatile than they were back in February, and the outlook is far less certain. That admittedly creates additional risk, perhaps skewed to the downside in the near term, but one can also envision upside scenarios.
Gary: Turning to slide 13, and our 2025 guidance.
Gary: As Gary mentioned, we are reaffirming all guidance announced in February as summarized on this slide.
Gary: Certainly economic conditions today are more volatile than they were back in February and the outlook is far less certain.
Gary: That admittedly creates additional risk, perhaps skewed to the downside in the near term and one can also envision upside scenarios.
Paul Mcdonough: The bottom line is our balance sheet and business model position us well to navigate through uncertainty as demonstrated most recently in the strong performance of our business through the COVID-19 pandemic. In addition, our stress testing indicates that we could absorb the impacts of a severe recession, if that were to come to pass, without dropping below our target capital and liquidity levels.
Gary: The bottom line is our balance sheet and business model position us well to navigate through uncertainty.
Gary: As demonstrated most recently and the strong performance of our business through the COVID-19 pandemic.
Gary: In addition, our stress testing indicates that we could absorb the impacts of the severe recession, if that were to come to pass without dropping below our target capital and liquidity levels.
Paul Mcdonough: Longer term, we remain very focused and committed to improving run rate ROE by 150 basis points over the 2025 to 2027 period from about 10% in 2024.
Gary: Longer term, we remain very focused and committed to improving run rate ROE by 150 basis points over the 2025 to 2000 2007 period.
Gary: From about 10% in 2024 and.
Gary Bhojwani: And with that, I'll turn it back to Gary. Thanks, Paul. Our financial health is strong and our business model is resilient. During times of uncertainty, our customers and clients need professional guidance and financial security products more than ever. Our associates, agents, and independent partners are here to help. Our track record has demonstrated our ability to navigate market events for a position of strength.
Gary: And with that I'll turn it back to Gary.
Gary: Yeah.
Gary: Thanks, Paul our financial Health is strong and our business model is resilient.
Gary: During times of uncertainty, our customers and clients need professional guidance and financial security products more than ever.
Gary: Our associates agents and independent partners are here to help.
Gary: Our track record has demonstrated our ability to navigate market events from a position of strength.
Gary Bhojwani: We remain confident in our capabilities to deliver profitable growth and drive ROE expansion in 2025 and beyond.
Gary: We remain confident in our capabilities to deliver profitable growth and drive ROE expansion in 2025 and beyond.
Gary Bhojwani: Before we open up the line for questions, I'm pleased to share a program. Starting in June, we will launch a new series of CNO Investor Briefs. These programs will focus on one area of CNO's business, provide a deeper look at that area's strategy and approach, and offer an opportunity for Q&A with members of management and their leaders.
Gary: Before we open up the line for questions I'm pleased to share a program update.
Gary: Starting in June we will launch a new series of CMO Investor briefings.
Gary: These programs will focus on one area of CNS business provide a deeper look at that area of strategy and approach and offer an opportunity for Q&A with members of management and their leadership team.
Gary Bhojwani: Our first investor briefing will feature a one-hour virtual session on CNO investments led by our Chief Investment Officer, Eric Johnson. Program registration will open in May. Event details will be announced soon, so please ensure that you are signed up to receive our email alerts.
Speaker Change: Our first investor briefing will feature a one hour virtual session on C. N O investments led by our Chief Investment Officer, Eric Johnson.
Speaker Change: Program registration will open in May event details will be announced soon so please ensure that you are signed up to receive our E mail alerts.
Gary Bhojwani: We thank you for your support of, and interest in, CNO Financial Group.
Speaker Change: We thank you for your support of and interest in C&I Financial Group, We will now open it up to questions operator.
Carly: We will now open it up to questions. Operator? Thank you very much.
Speaker Change: Thank you very much.
Carly: We'd now like to open the lines for Q&A. If you'd like to ask a question, please press star followed by 1 on your telephone keypad, and to remove your cell phone and question it will be star followed by 2. As a reminder, to raise a question will be star followed by 1.
Speaker Change: <unk> for Q&A.
Felicia: Asked a question. Please press star flip on one telephone keypad and Felicia I'm questioning will be stuff from the black Sea.
A reminder to phrase the question will be stuff slipped by one.
Wes Carmichael: Our first question comes from Wes Carmichael of Autonomous. Wes, your line is now open. Hey, good morning. Just on buybacks, they're a bit higher this quarter at $100 million. In just thinking ahead to the second quarter, and maybe a little bit of pressure on the stock today, would you expect, you know, kind of in the current more choppy macro environment, you might want to lean in to the buyback again, or this may be a little bit of a time to be more cautious, given potential recession fears and volatility?
Speaker Change: Our first question comes from Wes Carmichael of Autonomous your line is not open.
Speaker Change: Hey, good morning.
Speaker Change: Just on buybacks there are a bit higher this quarter at $100 million.
Speaker Change: Thinking ahead to the second quarter, and maybe a little bit of pressure on the stock today would you expect you know kind of in the current more choppy macro environment, you might want to lean into the buyback again or is this maybe a little bit I'm trying to be more cautious given a potential recession peers and volatility in market.
Paul Mcdonough: Hey, Wes. Good morning. It's Paul. So the short answer is that we're inclined to continue to lean in, as you know, our share buyback levels have been somewhat elevated the last two quarters, 90 million in 4Q, 100 million in this first quarter. We're still sitting on 250 million dollars of cash flow at the Holdco against our minimum of 150. So that creates some capacity that would suggest the potential for some continuation of these elevated levels.
Paul: Hey, Wes good morning, its Paul.
Wes Carmichael: So the short answer is that we're inclined to continue to lean in as you know are our share buyback levels have been.
Paul: Somewhat elevated in the last two quarters $90 million and <unk> of $100 million in.
Paul: In this first quarter.
Paul: Still sitting on $250 million of cash flow at the Holdco against our minimum of 150, so that creates some capacity.
Paul: That would suggest.
Paul: The potential for some continuation of of of these elevated levels.
Paul: Okay.
Paul Mcdonough: Helpful. Thanks, Paul.
Paul: A couple of things Paul.
Paul Mcdonough: And just switching to the fee revenue topic that we talked about with Medicare Advantage and the timing there. I know you said some of that is likely to reverse in future periods. Is there any color you can share on how the GAAP accounting revenue recognition differs from the cash flow from fees in the period? Sure. So Wes, I think this is a question that's pretty common across all of our sell side coverage, and I think probably with our investors as well. So let me give you a fairly long-winded response just to provide some information and context.
Paul: Just switching to the fee revenue.
Topic that we talked about with Medicare advantage and the timing there I know you said some of that is likely to reverse in future periods is there any color you can share on how the GAAP accounting revenue recognition differs from the cash flow from fees in the period.
Paul: Sure.
Paul: So I think this is a question thats pretty common across all of our our sell side coverage and I think probably with our investors as well. So let me give you a fairly long winded response, just to provide some some information in context. So as I'm sure you appreciate under ASC 606 accounting.
Paul Mcdonough: So I'm sure you appreciate under ASC 606 accounting, we are required to estimate lifetime revenue and expenses from each issued met advantage policy that we sell for third parties. And we base that estimate on our experience and the related data that we have with each of the carriers that issue the policies. We have more experience and related data with three primary carriers of the roughly 21 net advantage carriers that we represent. The sale of a policy to one of those three primary carriers translates to higher revenue and income than a sale to any of the other carriers, because with those other carriers we apply a constraint on our estimated lifetime revenue and income due to the more limited experience and related data we have with those carriers.
Paul: We are required to estimate lifetime revenue and expenses from each issued med advantage policy that we sell for third parties and we base that estimate on our experience and our related data that we have with each of the carriers that issue the policies.
Paul: We have more experience and related data with three primary carriers.
Paul: Roughly 21 med advantage carriers that we represent.
Paul: The sale of a policy to one of those three primary caregivers translates to higher revenue and income than a sale to any of the other carriers because with those other carriers, we apply a constraint on our estimated lifetime revenue and income due to the more limited experience and related data we have.
Paul: With those carriers.
Paul Mcdonough: In the first quarter, we saw a significant increase in the percentage of new sales with these other carriers and also in the percentage of exchanges where a policyholder is shifting from one of our three primary carriers to one of the other carriers. And this dynamic drove the decline in fee income year over year, notwithstanding the increase in the number of MedAdvantage policies that we sold and issued in the quarter. As we develop more credible experience with the newer carriers, we anticipate the assumptions between the three primary carriers and the newer carriers would converge. In other words, you would expect to relax the constraints we are currently applying to the newer carriers.
Paul: In the first quarter, we saw a significant increase in the percentage of new sales with these other carriers and also in the percentage of exchanges, where our policy holders is shifting from one of our three primary carriers to one of the other carriers and this dynamic drove the decline.
Paul: And fee income year over year, notwithstanding the increase in the number of med advantage policies that we sold and issued in the quarter.
Paul: Now as we develop more credible experience with the newer carriers.
Paul: Anticipate the assumptions between the three primary carriers and the newer carriers would converge in other words, we would expect to relax. The constraints. We are currently applying to the newer carriers.
Paul Mcdonough: So if it plays out like we expect, we would see a reversal in some future period of some of the adverse impacts we experienced in the first quarter of this year. The final point I think worth making is that we're not seeing an increase in the number of exchanges as a percentage of the total policies issued. So this is a healthy and growing part of our business, but there's some noise in the timing of revenue and income recognition under GAAP accounting, driven by a changing mix of sales between the three primary carriers and the newer carriers.
Paul: So if it plays out like we expect we would see a reversal in some future period of some of the adverse impacts we experienced in the first quarter of this year.
Paul: The final point I think worth making is that.
Paul: We're not seeing an increase in the number of exchanges as a percentage of the total policies issued so this is a healthy and growing part of our business, but there is some noise in the timing of revenue and income recognition under GAAP accounting driven by a changing mix of sales between the.
Paul: Three primary carriers and the newer carriers. So I'll stop there I know you know that was a lot, but hopefully that provides some helpful information in context.
Paul Mcdonough: So I'll stop there. I know that was a lot, but hopefully that provides some helpful information and context. Thank you. Thank you very much.
Paul: Thank you.
You bet. Thank you very much.
John Barnidge: Our next question. This call is from John Barnbridge of Piper's Fountain. John, your line is now open. Good morning. Thank you for the opportunity to ask a question. Just kind of following up on that fee income commentary, Paul, you said there'd be a reversal possibly in a future period. Does that reversal, like, occur possibly entry year or is it over a multi-year period?
Paul: Our next question.
Paul: Comes from jump on bridge the plant the Sun John Your line is not like it.
Paul: Okay.
Speaker Change: Good morning, Thank you for the opportunity. The question just kind of following up on that fee income commentary, Paul instead, there'll be a reversal of possibly in a future period.
Speaker Change: Does that reversal like occur, possibly intra year or is it over a multiyear period. Thank you.
Paul Mcdonough: Hey, John. You know, it's hard to say. It certainly could. We certainly could see some of that inside of calendar 2025. It could could extend beyond that. But the thing I would emphasize, John, is that our guidance hasn't changed, right? We're reaffirming our full year guidance. Fee income is a small piece of that. Our guidance for fee income was that it would be in 2025 a bit below what it was in 2024, largely because of this dynamic, which we foreshadowed back in February. We anticipated this sales mix and the impact that it would have. It's a bit more pronounced.
Speaker Change: Hey, John.
Speaker Change: Hard to say certainly could.
Speaker Change: We certainly could see some of that inside of calendar.
Speaker Change: 2025.
Speaker Change: It could could extend beyond that but the thing I would emphasize John is that our guidance hasn't changed right. We're reaffirming our full year guidance fee income is a small piece of that.
Speaker Change: <unk> for fee income was that it would be in 'twenty five a bit below what it was in 2024, largely because of this dynamic which we foreshadowed back.
Speaker Change: Back in February we anticipated this sales mix and the impact that it would have a bit more pronounced it's actually quite a bit more pronounced than we had anticipated.
Paul Mcdonough: It's actually quite a bit more pronounced than we had anticipated. And I think that's a dynamic, not just with us, but more broadly in this market. Again, we haven't seen an increase in the exchanges as a percentage of the total sales issued. So in that context, it's stable. So our guidance for fee income hasn't changed. I still expect it to be a bit lower than it was in 2024, you know, maybe by a bit more than we thought back in February. But again, fee income is a small component of the overall earnings and we reaffirm our full year guidance for earnings in total on a per share basis.
Speaker Change: And I think that's the dynamic not just with us but more broadly in this market.
Speaker Change: Again, we haven't seen an increase in the exchanges as a percentage of the total.
Speaker Change: Sales issued so in that context.
Speaker Change: It's stable.
So.
Speaker Change: Our guidance for fee income hasn't changed I still expect it to be a bit lower than it was in 2024, maybe buy a bit more than we thought back in February.
Speaker Change: But again the fee income is a small component of the overall earnings and we reaffirm.
Speaker Change: Our full year guidance for earnings in total.
Speaker Change: On the on a per share basis.
John Barnidge: Thank you for that.
Speaker Change: Thank you for that and my other question you talked about Akamai clear product launch can you maybe discuss how you view the opportunity set within that for <unk>.
John Barnidge: In my other question, you talk about a optimized clear product launch.
John Barnidge: Can you maybe discuss how you view the opportunity set within that for arguably a customer set that has demographic tailwinds?
Speaker Change: Arguably a customer set that has demographic tailwind. Thank you.
Gary Bhojwani: Thank Yeah, hey, John, this is Gary. So as you might imagine, we're really bullish on this. This really lets us bring together a bunch of services that we have historically offered to the worksite customers, and bring them together in one consolidated offering.
Speaker Change: Yeah, Hey, John This is Gary so as you might imagine we're really bullish on this this really lets us bring it together.
Speaker Change: A bunch of services that we have historically offered to the worksite customers and bring them together in one consolidated offering now there's one exception to that Theres, a new Medicare advice service that we're also providing in relatively speaking that's new to us.
Gary Bhojwani: Now, there's one exception to that, there's a new Medicare Advice Service that we're also providing, and relatively speaking, that's new to us. But we're really encouraged by the early reactions. Now, it's early, that's why we're sounding a little bit cautious. But we're very encouraged by the early reactions. We think that the demand for this will grow. And we're, we're very bullish on what the future potential is.
Speaker Change: We're really encouraged by the early reaction now it's early that's why we're sounding a little bit cautious, but we're very encouraged by the early reactions, we think that the demand for this will grow.
Speaker Change: We're very bullish on what the future potential is.
Speaker Change: Yeah.
John Barnidge: Thank you. Thank you very much.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Thank you very much.
Ryan Krueger: Our next question comes from Brian Krueger of Keith. We're at Edmunds.
Speaker Change: Our next question comes from Brian Kruger of Keith.
Speaker Change: Right.
Ryan Krueger: Ryan, your line is live. Morning. I had a question on direct-to-consumer life sales. Can you? I understand the headwind that you had from the political election and higher ad costs. But I guess at this point, is it your expectation that we'll have a bounce back in both ad spend and sales for direct-to-consumer for the balance of the year?
Speaker Change: Brian Your line is nice.
Speaker Change: Yeah.
Good morning.
Speaker Change: I had a question on direct to consumer life sales.
Speaker Change: I understand the headwind that you had from.
Speaker Change: From the political election, and higher ad cost.
Speaker Change: At this point is it your expectation that we'll have a bounce back in both AD spend and sales for direct to consumer for the balance of the year.
Gary Bhojwani: Ryan, this is Gary. Thanks for the question. I would say at a high level, yes, there's one caveat I'd put on that. There has over the last three, so this is my third election being here. And over that period of time, there's been a broader shift away from broadcast television to streaming and this type of thing. So it's hard for us to tell how much of a bounce back we'll have in this traditional media setting, given that overlay. If it weren't for that overlay, I would say absolutely, yes, that's our expectation. We just don't know how to partake that.
Speaker Change: Ryan.
Speaker Change: This is Gary Thanks for the question I would say at a high level, yes, there's one caveat I'd put on that.
Speaker Change: There has over the last three so this is my third election being here at Seattle.
Speaker Change: And over that period of time, there's been a broader shift away from broadcast TV to streaming in this type of thing. So it's hard for us to tell how much of a bounce back we will have in this traditional media setting given that overlay if it werent for that overlay I would say.
Speaker Change: Absolutely, yes, that's our expectation we just don't know how to protect that now on the on the positive side, because we've seen this coming us and everybody else, we've been moving more and more of our advertising efforts to other social media channels and you'll recall from my script I believe I called it a 36% of our sales now come.
Gary Bhojwani: Now, on the positive side, because we've seen this coming, us and everybody else, we've been moving more and more of our advertising efforts to other social media channels. And you'll recall from my script, I believe I quoted 36% of our sales now come from those non-traditional broadcast television areas. So that's the one caveat I would put on that expectation. But we have been preparing for it and we've been seeing good success in those alternate media channels.
Speaker Change: From those non traditional broadcast TV areas. So so that's the one caveat I would put on that expectation, but we have been preparing for it and we've been seeing good success in those alternate media channels.
Ryan Krueger: Got it. Thanks.
Got it thanks, and then could you give a little bit more color on the trends youre seeing in consumer agent recruiting and retention.
Gary Bhojwani: And then could you give a little bit more color on the trends you're seeing in consumer agent recruiting and retention? Had a good string of growth. Are you still optimistic about continued growth from from here? The short answer is yes, we remain optimistic on our ability to give a good career path to these folks that are interested in this. Historically, we've seen that when unemployment pressure rises, our agent recruiting picks up. So if there is going to be an increase in unemployment, we would expect that to help us. But even without that, as you pointed out, we've strung together many, many quarters now.
Speaker Change: Good string of growth you're still optimistic about continued growth from from here.
Speaker Change: Short answer is yes, we remain optimistic on our ability to give a good career path to these folks that are interested in this.
Speaker Change:
Speaker Change: Historically, we've seen that when unemployment pressure rises.
Speaker Change: Agent recruiting picks up.
So if there is going to be an increase in unemployment, we would expect that to help us, but even without that as you pointed out we've strung together. Many many quarters now. So we think we've got an offering in a model here that really resonates with people that are willing to consider this as a career. So we expect our agent counts to grow and we expect our productivity to grow certainly over a longer time.
Gary Bhojwani: So we think we've got an offering and a model here that really resonates with people that are willing to consider this as a career. So we expect our agent counts to grow, and we expect our productivity to grow, certainly over a longer timeframe.
Ryan Krueger: For more information visit www.fema.gov Great, thank you. Great, thank you very much.
Speaker Change: Right.
Speaker Change: Great. Thank you.
Speaker Change: Great. Thank you very much.
Suneet Kamath: Our next question comes from Suneet Kamath of Jefferies. Suneet, your line is now open. Hi, thanks. Maybe just to follow up on Ryan's second question, it looks like the consumer PAC was down maybe 3% from the fourth quarter and maybe lower than third and fourth quarter of last year, maybe flat to 2Q. So I know you just talked about recruiting growth, but What is the outlook for PAC in the consumer division? Thanks. I expect us to continue to grow that. We experience quarter to quarter fluctuations, so on a sequential basis there may be some bumps in it, but I believe that on an annual basis, if you look at similar periods year over year, meaning Q1 to Q1, I expect us to continue to show growth.
Speaker Change: Our next question comes from Sunny come off of Jefferies. Your.
Speaker Change: Your line is now open.
Sunny: Hi, Thanks.
Speaker Change: Maybe just to follow up on Ryan second question. It looks like the consumer pack was down maybe 3% from the fourth quarter and maybe lower than.
Speaker Change: Third and fourth quarter of last year, maybe flat to <unk>. So I know you just talked about recruiting growth but.
Speaker Change: What is the outlook for pack in the consumer Division.
Speaker Change: Yeah.
Speaker Change: I expect us to continue to grow that.
Speaker Change: We experienced quarter to quarter fluctuations.
Speaker Change: On a sequential basis, there may be some bumps in it but I believe that on a on an annual basis. If you look in similar periods year over year, meaning Q1 to Q1, I expect us to continue to show growth.
Gary Bhojwani: Certainly over a longer period, meaning over the full year, absolutely. Intra-quarter or intra-year, there may be some bumps here and there, but nothing significant. We're not seeing anything that tells us our models are not holding up in terms of the longer term projections for both agent count growth and productivity. Got it.
Speaker Change: Certainly over a longer period, meaning over the full year, absolutely intra quarter or intra year, there may be some bumps here and there, but nothing significant we're not seeing anything that tells us our models are not holding up in terms of the longer term projections for both agent count growth and productivity goals.
Speaker Change: Got it and then maybe just in terms of your target market.
Gary Bhojwani: And then maybe just in terms of your target market, how are you thinking about the appetite that they would have for insurance products? I mean, if we do see a bigger impact from tariffs, and you know, costs continue to rise, or we go into a recession, can you just talk about sort of the health of that market? Yeah, overall, look, if we go into a recession, it of course depends on just how deep that is, right? It's very hard to predict that. But the things that don't change in a recession, 11,000 people still turn 65 every day.
Speaker Change: How are you thinking about the appetite that they would have for insurance products. I mean, if we do see a bigger impact from tariffs and costs continue to rise or we go into a recession can you just talk about sort of the health of that market.
Speaker Change: Yeah overall I'm looking for.
Speaker Change: If we go into recession. It of course depends on just how deep that is right.
Speaker Change: Very hard to predict that.
Speaker Change: But but the things that don't change in a recession.
Speaker Change: 11000 people still turn 65 every day that doesn't change.
Gary Bhojwani: That doesn't change. Those people are living longer, the lifespans are greater. Medical costs are going up. and there are a few more. For those reasons, recession or no, we expect there to be continued strong interest in our products. Now, are we immune to a recession or an economic downturn? Of course not. We'll be impacted. But I don't think we'll be impacted nearly as significantly as manufacturers of other hard goods, as an example, or other discretionary purchases. I think we'll weather that much better than others have. And I would point to recent experiences, not least of which is the pandemic.
Speaker Change: Those people are living longer lifespans are growing med.
Speaker Change: Medical costs are going up.
Speaker Change: And there are fewer alternatives.
Speaker Change: For those reasons recession or no. We expect there to be continued strong interest in our products now are we immune to a recession or an economic downturn of course will be impacted but I don't think we'll be impacted nearly as significantly as manufacturers of other hard goods as an example, or there's other discretionary purposes.
Speaker Change: <unk>.
Speaker Change: I think we'll weather that much better than others haven't and I would point to recent experiences not least of which is the pandemic. We came through that I think relatively well and even with the period of prior inflation that we had over the last year or two we came through that quite well. So I think that supports our view that the demand and need for these products is.
Gary Bhojwani: We came through that, I think, relatively well. And even with the period of prior inflation that we had over the last year or two, we came through that quite well. So I think that supports our view that the demand and need for these products is relatively resilient, not immune, but relatively resilient to some of these macroeconomic pressures. Got it, thank you. Thank you very much.
Speaker Change: Relatively resilient not immune but relatively resilient to some of these macroeconomic pressures.
Speaker Change: Got it thank you.
Speaker Change: Thank you very much.
Jack Matten: Our next question comes from Jack Matten of BMO. Jack, your line is now open. Hi, good morning. Just a question on your Medicare business. A big health insurer recently flagged some margin issues with Medicare Advantage. I'm wondering if you expect consumers to shift toward Medicare supplement if there's higher pricing on the Medicare Advantage side, and any impacts we could see on your Medicare Advantage fee income if those carriers are raising rates? Jack, thanks for the question. So first, you know, there's been a couple other questions about our Medicare Advantage business. And I just want to emphasize one thing.
Speaker Change: Our next question comes from Jack Medicine, with BMO, Jack you and I just don't know.
Speaker Change: Hi, good morning.
Speaker Change: Just a question on your Medicare business, a big help ensure originally flagged some margin issues with Medicare advantage I'm wondering if you expect consumers to shift toward Medicare supplement as well as higher prices on the Medicare advantage side and any impact you can see on your Medicare advantage to you in Thomas' superiors of raising rates.
Speaker Change: Okay.
Speaker Change: Jack Thanks for the question. So first you know theres been a couple of other questions about our Medicare advantage business.
Speaker Change: Emphasize one thing I would kill to have another quarter like the one we just had a 42% growth in policies and the only bump here was the timing of that.
Gary Bhojwani: I would kill to have another quarter like the one we just had. 42% growth in policies and the only bump here was the timing of that fee recognition. I want to make sure that really came across loud and clear. I would kill to have another quarter like the one we just had. It was absolutely a fantastic quarter. Now, to your point, I think that some demand will be impacted. On MA, we may see, I don't know if we'll see them shifting back to MedSupp or other types of plans, or it's a little early to call that.
Speaker Change: Fee recognition I want to make sure that really came across loud and clear.
Speaker Change: I would kill to have another quarter like the one we just had it was absolutely fantastic quarter.
Speaker Change: To your point I think that some demand will be impacted.
Speaker Change: On M&A, we may see I don't know, if we'll see them shifting back to med sup or other types of plans or it's a little early to call that.
Gary Bhojwani: But there's been a long secular trend away from MedSupp towards MedAdvantage. And I think that will abate somewhat because I think carriers are going to start reeling in some of the benefits that they had in the MA space. So I do expect to see that. I don't think that will have a material impact on us. Because our view is that those consumers that may have considered MA, to the extent they consider MedSupp, especially with us, frankly, I'd rather sell a MedSupp because we manufacture and collect a distribution margin on that. Whereas with MA, it's just simply a distribution margin.
Speaker Change: But theres been a long secular trend away from med sup towards med advantage and I think that will abate somewhat because I think carriers are going to start reeling in some of the benefits that they had in the MH space. So I do expect to see that.
Speaker Change: I don't think that will have any material impact on us.
Speaker Change: Our view is that those consumers that may have considered MAA to the extent they can consider med sup, especially with us.
Speaker Change: Frankly, I'd, rather sell them, that's up because we manufacture and collect the distribution margin on that whereas without may its just simply a distribution market. So we view ourselves as being in a good position if that happens and remember if those MAA underwriting results worsen.
Gary Bhojwani: So we view ourselves as being in a good position if that happens. And remember, if those MA underwriting results worsen, Those don't impact us because we're strictly a distributor on the MA side. So whatever happens on the shift between that demand, we regard it generally speaking as left pocket, right pocket. If they want to buy MA from us, we're thrilled to sell it to them. We like the margin we get on that. It's great. If they want to shift to buy MedSupp instead, we're happy to sell them that too. We enjoy that product. So we don't see that having a material impact if that transition material That's helpful.
Speaker Change: Those don't impact us because we're strictly a distributor on the MA side, so whatever happens on the shift between that demand. We regard. It generally speaking is a left pocket right pocket.
Speaker Change: If they want to buy them from us we're thrilled to sell it to them, we like the margins we get on that it's great. If they want to shift to biomed stuff. Instead, we're happy to sell them that too we enjoy that product.
Speaker Change: So we don't see that having a material impact if that transition materializes.
Speaker Change: That's helpful. Thank you and them.
Jack Matten: Thank you. And just to follow up, in the slide, you referenced a potential RBC ratio variability. Tell me if you could elaborate on that, like what you're seeing, and would you expect any potential impacts in the second quarter, given the market volatility we've seen in April? Sure.
Just a follow up on the slide.
Speaker Change: You referenced the potential RBC ratio variability to me if you could elaborate on that like what youre seeing and what do you expect any potential impacts in the second quarter given the market.
Speaker Change: Volatility you've seen in April.
Speaker Change: Sure Hey, Jack it's Paul I'll take that one so.
Paul Mcdonough: Hey Jack, it's Paul. I'll take that one. So we ended the quarter with RBC of 379 against our target of 375. The 379 was impacted by a couple of things that I would describe as timing that are likely to, you know, reverse or unwind over time. Now I pointed two things in particular. One is an increase in non-admitted assets, which will certainly reverse. And the other is the accounting for the statutory accounting for FIAs, which has a dynamic where when equities, equity markets, equity indexes are declining like they did in the first quarter, that has an adverse impact on our stat net income and stat capital because the options that we use, the one-year call options that we use to hedge our exposure to equities that, you know, comes through the in the FIA product, those are marked to market.
Speaker Change: We ended the quarter with the RBC of $3 79 against our target of $3 75.
Speaker Change: The $3 79 was impacted by a couple of things that I would describe as timing.
Speaker Change: That are likely to.
Speaker Change: Reverse.
Speaker Change: Sure.
Speaker Change: Online over time.
Speaker Change: I pointed two things in particular one is.
An increase in non admitted assets, which will which will certainly reverse and the other is the accounting for the.
Speaker Change: Statutory accounting for F <unk>.
Speaker Change: Which has a dynamic where when equities.
Speaker Change: Equity markets equity indexes.
Speaker Change: Our declining like they did in the first quarter that has an adverse impact on our net income in stat capital because the options that we use the one year call options that we use to hedge our exposure to equities that comes through the par rate and the and the FIA product.
Speaker Change: Those are mark to market.
Speaker Change:
Paul Mcdonough: and and that. Mark is mostly offset by the change in the liability, but not entirely. So you have a little bit of a disconnect there from a staff accounting perspective. Economically, it's a nearly perfect hedge. And so that had an impact in the first quarter, essentially unwinding positive impacts in prior quarters when equities were up because this moves the same way in both directions. So those are the two things, Jack, that I'd point to in the quarter. Appreciate it. Thank you. Thank you very much.
Speaker Change: And that.
Speaker Change: Mark is mostly offset by the change in the liability, but not entirely so you have a little bit of a disconnect. There from a staff accounting perspective economically it's a nearly perfect catch.
Speaker Change: And so that had an impact in the first quarter essentially.
Speaker Change: Unwinding positive impacts in prior quarters, when equities are up because this moves the same way in both directions.
Speaker Change: So those are the two things check that I'd point to in the quarter.
Speaker Change: I appreciate it thank you.
Speaker Change: Mhm.
Speaker Change: Thank you very much. Our next question comes from wound up excuse me when will that is Raymond James Your line is now open.
Wilma Burdis: Our next question comes from Wilma Burdis, Raymond James. Wilma, your line is now open. Hey, good morning. Could you give us a little bit more color on the geographic expansion and worksite? Thanks.
Speaker Change: Yeah.
Speaker Change: Hey, good morning could you give us a little bit more color on the geographic expansion and work site. Thanks.
Gary Bhojwani: Yeah, so we've, hi Wilma, this is Gary. We've undertaken this now for about a year, year and a half. We've seen a substantial growth in our sales because of this. We expect that to continue. We are looking at new geographies, but we're being slow at how we do that. Disciplined is a better word. And we expect that to continue. So we like what we see. We expect the trend to continue in current new geographies, if you will, the ones that we've already opened, and we are continuing to look at new opportunities.
Speaker Change: Yeah. So we've Ah ha moment. This is Gary we've undertaken this now for I think about a year year and a half.
Speaker Change: We've seen substantial growth in our sales because of this we expect.
Speaker Change: Back to that to continue we are looking at new geographies, but we're being slow and how we do that.
Speaker Change: Disciplined is a better word.
Speaker Change: And we expect that to continue so so we like what we see we expect to trend to continue in the current new geographies. If you will the ones that we've already opened and we are continuing to look at new opportunities.
Speaker Change: Okay.
Paul Mcdonough: And it seems like you still feel confident on delivering 50 bits of ROE improvement in 2025. Can you talk about what is ongoing there to, you know, this year that's going to help improve on the expense side and any risks that you're seeing to that figure? Thanks. Sure.
Speaker Change: It seems like you still feel confident on delivering 50 bps. The ROE improvement in 2025 could you talk about what is ongoing there in Q.
Speaker Change: This year, that's going to help improve on the expense side and any risks that you are seeing to that to that figure. Thanks.
Speaker Change: Sure Hey, walnuts Paul.
Paul Mcdonough: Hey, Wilma, it's Paul. You know, so as I've said in the past, there's a multitude of things that is contributing to the improvement in our ROE. Expenses is one, you know, growth in the business is another, which contributes to the growth in our insurance product margin, the higher interest rates, you know, we've been putting new money to work about portfolio yields for the last, you know, quarter's nine, I think is the number. You know, we're looking at the in-force business and letters we pull there, the pricing of new business, the management of capital, including the capital dynamics of the reinsurance treaty with our new Bermuda company.
Speaker Change: So as I've said in the past there is a multitude of things that is contributing to the improvement in our ROE.
Speaker Change: <unk> expenses as one.
Speaker Change: Growth in the business is another.
Speaker Change: Which contributes to the growth in our insurance product margin.
Speaker Change: Higher interest rates, we've been putting new.
Speaker Change: New money to work in both portfolio yields for the last several quarters now and I think that's the number.
Speaker Change:
Speaker Change: I know we're looking at.
Speaker Change: At the.
Speaker Change: Enforced business and levers, we pull there the pricing of new business.
Speaker Change: The management of capital.
Including the capital dynamics of the reinsurance tree with our neutral music company all of those things are contributing to.
Paul Mcdonough: All of those things are contributing to ROE improvement in 2025, and we expect will continue to drive our ROE improvement over the next couple of years, along with other things that we're currently contemplating. To some degree more of the same, but some other things likely on the margin as well. So hopefully that's helpful, Wilma. There's not really any single silver bullet. It's all of those things in aggregate. Thank you. Thank you very much.
Speaker Change: ROE improvement.
Speaker Change: In 2025, and we expect we will continue to drive our ROE improvement over the next couple of years, along with other things that we're currently contemplating.
Speaker Change: Yes.
Speaker Change: To some degree more of the same.
Speaker Change: But.
Speaker Change: Some.
Speaker Change: Some other things likely on the margin as well.
Speaker Change: So hopefully that's helpful helpful Loma Theres, not really any single silver bullet.
Speaker Change: It's all of those things in aggregate.
Speaker Change: Thank you.
Speaker Change: Hmm.
Speaker Change: Thank you very much. Our next question comes from Tom Gallagher of Evercore ISI, Tom Your line is not all of them.
Tom Gallagher: Our next question comes from Tom Gallagher of Ebicore ISI. Tom, your line is now open. Good morning. Paul, just wanted to circle back on your comment on the drag from the equity market weakness on the FIA on the fair value of the derivatives. What kind of magnitude was that? And I'm also asking just because obviously markets are weaker into 2Q, should we expect similar or a larger drag? Yeah. So the magnitude in the first quarter, Tom, was about $25 million. If we were to have another, say, 5%, I think was the equities were down about 5% in the quarter, that translated to this $25 million.
Speaker Change: Yeah.
Tom Gallagher: Good morning, Paul just wanted to circle back on your comment on the drag from the equity market weakness on the F. I E on the on the fair value of the derivatives.
Speaker Change: What what kind of magnitude was that.
Speaker Change: And I'm also asking just because obviously markets are weaker into <unk> should we expect similar or a larger drag.
Speaker Change: Yeah.
Speaker Change: So the magnitude in the first quarter time was about $25 million.
Speaker Change:
Speaker Change: If we were to have.
Speaker Change: Another say, 5% I think was the equities were down about 5% in the quarter that translated to this $25 million again, mostly that was giving back the benefit that we saw in previous quarters when the when the markets were up.
Paul Mcdonough: Again, mostly that was giving back the benefit that we saw in previous quarters when the markets were up. If we were, we'd have to be down another 15% at a similar order of magnitude impact in the second quarter. So the impact declines from where we are today versus where we are in December, and really depends on kind of where you are. The other thing I would say, Tom, is it's entirely timing, right? The whole thing nets to zero over the one year. If you're thinking about one option, it would be net zero over the life of that one year option.
Speaker Change: If we were we'd have to be down another 15% at a similar order of magnitude impact in the second quarter.
So.
Speaker Change: The impact from declines.
Speaker Change: From where we are today versus where we are in December and really depends on kind of where you are the other thing I would say time is it's entirely timing right the whole thing.
Speaker Change: To zero over the one year.
Speaker Change: If youre thinking about one option.
Speaker Change: It would be net zero over the life of that one year option.
Paul Mcdonough: So it's really just timing.
Speaker Change: So it's really just timing.
Paul Mcdonough: Got it, Paul. So you'll earn some of that back over the balance of the year. Is that the right way to think about it as the options expire? I mean, in the context of a single option, yes. In the context of the entire portfolio, you know, it's going to move up and down with equities, you know, with varying degrees of magnitude. But if, you know, if you put the thing in runoff, yes, it would all unwind to zero. But if you're looking at calendar year. I guess a similar. Gotcha. Okay, thanks.
Speaker Change: Got it got it Paul see you you'll earn some of that back over the balance of the year or is that the right way to think about it as the options expire.
Speaker Change:
Speaker Change: I mean in the context of a single option yes.
Speaker Change: In the context of the entire portfolio.
Speaker Change: It's going to move up and down with with equities.
Speaker Change: With varying degrees of magnitude.
Speaker Change: But if you put this thing in runoff, yes, it would all unwind to zero.
Speaker Change: But if youre looking at and then under year I guess similar.
Speaker Change: Gotcha. Okay. Thanks, and then similar question for the Med advantage revenue recognition drag on gap is there where they're also similar impacts on cash flows.
Paul Mcdonough: And then similar question for the MedAdvantage revenue recognition drag on GAP. Is there, were there also similar impacts on cash flows? How should we think about that? Yeah, so the cash flows are, you know, much simpler, right? You you sell a policy and, and the cash flows that you would expect emerge from there. This is just pure accounting, right? You've got to, you've got to predict, estimate what the lifetime cash flows will be. And on that basis, you, you book your revenue and your expenses and your income So you would have had stronger cash flows than, as reported from a GAAP perspective in Q1.
Speaker Change: How should we think about that.
Speaker Change: Yeah. So the cash flows or are you now much simpler I view you sell a policy and the cash flows that you would expect.
Speaker Change: Emerge from there.
Speaker Change: This is just pure accounting right you've got to you've got to predict.
Speaker Change: Estimated what the lifetime cap.
Speaker Change: <unk> flows will be and and on that basis, you book Your revenue and your expenses and your income.
Speaker Change: So you would have you would have had stronger cash flows than as reported from a gap.
Speaker Change: Perspective in Q1 does that is that a fair.
Paul Mcdonough: Is that a fair... Yeah, for sure. I mean, what's happening in Q1 is, by virtue of going from the three primary carriers, you know, where we don't apply any constraint to smaller carriers where we do, there's an experience adjustment that's translating to, you know, the result that we booked in the quarter. Okay, thanks. Great, thank you very much.
Speaker Change: Yeah for sure I mean, what's happening in Q1 is by by virtue of going from.
Speaker Change: The three primary carriers.
Speaker Change: Where we don't apply any constraint to smaller carriers, where we do there is an experienced adjustment it's translating to.
Speaker Change: Uh huh.
Speaker Change: The result that we booked in the quarter.
Speaker Change: Okay. Thanks.
Speaker Change: You bet.
Great. Thank you very much. We currently have no further questions. So I'd like to have Matt Adam for any further amongst.
Adam Auvil: We currently have no further questions, so I'd like to hand back to Adam Auvil for any further remarks. Thank you, operator, and thank you all for participating in today's call. As a reminder, if you are interested in receiving details on our upcoming investor briefing, please ensure that you are signed up to receive our email or...
Speaker Change: Thank you operator, and thank you all for participating in today's call. As a reminder, if you are interested in receiving details on our upcoming investor briefing. Please ensure that you are signed up to receive our email or lines.
Adam Auvil: Have a great rest of your day.
Speaker Change: Have a great rest of your day.
Speaker Change: Yeah.
Adam Auvil: As we conclude today's call, we'd like to thank everyone for joining.
Speaker Change: As we conclude today's call we didn't just thank everyone for joining given that disconnect your lines.
Carly: You may now disconnect your lines.
Speaker Change: